Petition for Writ of Certiorari — Tenneco Oil Co. v. Kern Oil & Refining Co.
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GC)
; Supreme Court, U.S,
8 § - 4 52 FILED
SEP 15 1983
BED eeeromes JOSEPH F. SPANIOL, JR,
IN THE
Supreme Court of the United States
OCTOBER TERM, 1988
TENNECO OIL COMPANY,
Petitioner,
Vs
KERN OIL & REFINING COMPANY,
a Respondent.
PETITION FOR WRIT OF CERTIORARI TO THE
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
Of Counsel:
JAMES R. MARTIN
MARK. WEBER
GIBSON, DUNN & CRUTCHER
333 South Grand Avenue
Los Angeles, CA 90071
(213) 229-7000
JOHN P. MATHIS
JANE G. ADAMS
BAKER & BOTTS
555 Thirteenth Street, N.W.
Washington, D.C. 20004
(202) 639-7700
BoypD L. HENDERSON
ALFRED B. SMITH, JR.
TENNECO OIL COMPANY
1010 Milam Street
Suite 2240
Houston, Texas 77001
(713) 757-3078
E. BARRETT PRETTYMAN, JR.*
JOHN G. ROBERTS, JR.
BARBARA L. SLOAN
HOGAN & HARTSON
555 Thirteenth Street, N.W.
Washington, D.C. 20004
(202) 637-5685
Counsel for Petitioner
* Counsel of Record
WILSON - EPES PRINTING Co., INc.
- 789-0096 - WASHINGTON, D.C. 20001
QUESTIONS PRESENTED
1. Did the court below err in accepting and relying
upon findings of fact and conclusions of law entered by
the District Court after a proper notice of appeal had
divested the District Court of jurisdiction, contrary to
the holdings of this Court and the Third, Fifth, and
Seventh Circuits?
2. May a District Court prohibit a party—by enforc-
ing a stipulated umbrella protective order, barring the
public and press from the courtroom, and refusing to
unseal the trial record and exhibits until after its deci-
sion in the case—from presenting to a federal regulatory
agency evidence—later found by the agency to be true—
that the other party had perpetrated a fraud on the
agency?
(i)
ii
PARTIES TO THE PROCEEDINGS
Petitioner Tenneco Oil Company is wholly-owned by
Tenneco Corporation, which is wholly-owned by Tennessee
Gas Pipeline Company, which in turn is wholly owned by
Tenneco Inc. Pursuant to Rule 28.1, a complete listing of
all subsidiaries and affiliates of Tenneco Inc. appears at
Appendix M. Tenneco Oil Company was defendant-
counterclaimant in the District Court and appellant in
the Court of Appeals. Respondent Kern Oil & Refining
Company was plaintiff-counterdefendant in the District
Court and appellee in the Court of Appeals.
TABLE OF CONTENTS
QUESTIONS PRESENTED ...... POY Sa eee IRE
PARTIES TO THE PROCEEDINGS ............................
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I Ci sss ecncensecteansentunstacanscvssbonssecneibens
oa aeaicassdantdaiogatestnniinbeseainns ix emsenninhaiats
PERTINENT CONSTITUTIONAL PROVISION AND
a ae hacactoecetiiei ens esndhbaresniammtohcnion<shasacennnockondairepezwession
ce es yt yy} oF S| En
REASONS FOR GRANTING THE WRIT..........0.......
I. The District Court Lacked Jurisdiction To Enter
Findings Of Fact And Conclusions Of Law After
The Filing Of A Notice Of Appeal _..........0.00000.....
II. The Courts Below Violated The First Amend-
ment, Rule 26(c), And Public Policy By Barring
Tenneco From Presenting The Evidence Of
Kern’s Fraud To The Appropriate Federal Reg-
SEES ALA on OE ae Sele See
A. The Decision Below Conflicts With This
Court’s Decision In Seattle Times ..................
B. The Decision Below Conflicts With Decisions
From The Third, Sixth, Seventh, And Elev-
enth Circuits On The Implications Of Um-
brella Protective Orders
C. The Decision Below Violates Public Policy...
CONCLUSION
16
17
22
28
30
iv
TABLE OF CONTENTS—Continued
APPENDICES
Appendix A:
Appendix B:
Appendix C:
Appendix D:
Appendix E:
Appendix F:
Appendix G:
Appendix H:
Appendix I:
Appendix J:
Appendix K:
Appendix L:
Appendix M:
Opinion of Court of Appeals, filed
EE Tek. PEE Sicoestscentensatesaccecennenen
Order of Court of Appeals Denying
Petition for Rehearing, filed May
. 3. Se Meises. ata ie
Order extending time to file petition
for certiorari
Order of District Court on Disclo-
sure, filed Sept. 6, 1985 —..................
Order of District Court on Disclo-
sure, filed Oct. 11, 1985 ....................
Transcript of Proceedings, Dec. 18,
1985
Memorandum of Decision of Dis-
trict Court, filed Aug. 28, 1986........
Order of District Court on Disclo-
sure, filed Sept. 25, 1986 _..............
Order and Judgment of District
Court, entered Nov. 5, 1986.............
Findings of Fact and Conclusions
of Law of District Court, entered
pS UR tae Pe
Stipulated Protective Order _...........
Pertinent Constitutional Provision
GE IS Sat ai deehe: Oat
Statement Pursuant to Rule 28.1...
Page
v
TABLE OF AUTHORITIES
Cases: Page
American Tel. & Tel. Co. v. Grady, 594 F.2d 594
(7th Cir. 1978), cert. denied, 440 U.S. 971
EET TID. cnuswinsknsintnaneseamsntincnidadidammeninasiemaate maaan 23
Anderson vy. Cryovac, Inc., 805 F.2d 1 (Ast Cir.
TID: ccetcnsinesisnenaaciuncnsdimateriasceaea i eee 20, 21, 26
Applications of NBC, 828 F.2d 340(6th Cir. 1987)... 26-27
Avendano v. Gay, 75 U.S. (8 Wall.) 376 (1869) .. 10
Beliz v. W.H. McLeod & Sons Packing Co., 765
ip Bw iym) Cs Se: | Rae ere 11
Budinich v. Becton Dickinson & Co., 108 S.Ct.
EERE. QROMED ceccirccdicecasieciaee eee 10
Brown & Williamson Tobacco Corp. v. FTC, 710
F.2d 1165 (6th Cir. 1983), cert. denied, 465
CU. ROW CRED cciaciuciniacoseneie anes 24
CBS, Inc. v. United States Dist. Court, 765 F.2d
Re | FRc eo ee 21
Ced’s Inc. Vv. EPA, 745 F.2d 1092 (7th Cir. 1984),
cert. denied, 471 U.S. 1015 (1985) .................... 11
Christianson vy. Colt Indus. Operating Corp., 108
ts Bs) ht, Seer Ea 10, 15
Cipollone v. Liggett Group, Inc., 785 F.2d 1108
«gt 3 Rae oe 19, 20, 21, 24, 26
Cipollone v. Liggett Group, Inc., 822 F.2d 335
(3d Cir.), cert. denied, 108 S. Ct. 487 (1987) ....21, 22, 27
Data Digests, Inc. v. Standard & Poor’s Corp., 57
F.R.D. 42 (S.D.N.Y. 1972) ....... SERED Sates Pe 23, 29
Essex Wire Corp. Vv. Eastern Elec. Sales Co., 48
Aki 6 ee RR ee 29
GAF Corp. v. Eastman Kodak Co., 415 F. Supp.
pe. et 8 Se . : RAE nenE mE 23, 26, 29
Garcia V. Burlington Northern R. Co., 818 F.2d
TR CRUE Ss, BONED cninticcinciteetinas ae ao 9
Generes V. Bonnemer, 74 U.S. (7 Wall.) 564
f | RUE aan ER ON ON UCR Sear En) 10
Gormong V. Local Union 613, IBEW, 714 F.2d
RRO. CEU Gis Fe cence eee 14, 15
Griggs V. Provident Consumer Discount Co., 459
aa OR CRE ie ee 9,10, 14
vi
TABLE OF AUTHORITIES—Continued
Page
Henry Vv. Farmer City State Bank, 808 F.2d 1228
(7th Cir. 1986) ......... secede diaiiaiasidaaaaosidaliad sia namie 9,14
Hybritech Inc. vy. Abbott Laboratories, 849 F.2d
BOGS CHU GR. Fe cemscieciseasanteiaen 13
In re “Agent Orange,” 104 F.R.D. 559 (E.D.N.Y.
RUD cvisscssessessseonahenensehsneabetiiedehienascalaaa nea 25, 26
In re “Agent Orange” Prod. Liab. Litig., 821 F.2d
139 (2d Cir.), cert. denied, 108 S. Ct. 344
CRIB D cccccccenschisaninitinesseibbiibseciisassanadtaeasadeeeeeaee 19, 25
In re Alexander Grant & Co. Litig., 820 F.2d 352
95 Bi ey ema eae ent EF et ees 19, 24, 27
In re Coordinated Pretrial Proceedings in Petro-
leum Prod. Antitrust Litig., 101 F.R.D. 34
(GER. Gal: SIN esa cetieeoat aera oe 25, 26
In re The Reporters Comm. for Freedom of the
Press, 773 F.2d 1325 (D.C. Cir. 1985) _.... 25, 26, 27, 28
Kern Oil & Refining Co. vy. Tenneco Oil Co., 792
F.2d 1380 (9th Cir. 1986), cert. denied, 107
. CO. TGP Geer ciate ecccet 2
Kirtland v. J. Ray McDermott & Co., 568 F.2d
REGS Giem Gib, Fi teettie 15
Marrese v. American Academy of Orthopaedic
Surgeons, 470 U.S. 376 (1985) ...........................- 9
Martindell v. IT&T, 594 F.2d 291 (2d Cir. 1979).. 23
Matter of Continental Illinois Sec. Litig., 732 F.2d
SOUR CTU GA Be iiekttiie eee 24, 25, 26, 27
Matter of Jones, 768 F.2d 923 (7th Cir. 1985)... 13, 14
New York v. United States Metals Refining Co.,
iB e 2. Es | Nee ee 20
Newman v. Graddick, 696 F.2d 796 (11th Cir.
RIED <eccsssseiemssipieaislaicimn nicidsee eee i eee 21
Nicol v. Gulf Fleet Supply Vessels, Inc., 743 F.2d
ee COG CS NOD Sect ee 9
Oklahoma Hospital Ass’n v. Oklahoma Publish-
ing Co., 748 F.2d 1421 (10th Cir. 1984), cert.
denied, 473 U.S. 905 (1985) —.....0 23
vii
TABLE OF AUTHORITIES—Continued
Page
Philadelphia Marine Trade Ass’n v. International
Longshoremen’s Ass’n, Local 1291, 365 F.2d 295
(3d Cir. 1966), rev’d on other grounds, 389
ie | Gs, RARER REN SUR inn eet na neeen 11
Procunier Vv. Martinez, 416 U.S. 396 (1974)............. 18
Rodgers v. United States Steel Corp., 536 F.2d
a gO SRE A noe 20
Rucker v. U.S. Dept. of Labor, 798 F.2d 891 (6th
ER DPE SPs eee Eectne ee ee a OA em 9
Seattle Times Co. v. Rhinehart, 467 U.S. 20
CSR ESR DESC OPN at eee Se 17, 18, 19, 23
Sharjah Inv. Co., Ltd. v. P.C. Telemart, Inc., 107
fe FR eenren eee 26
Silverthorne v. Laird, 460 F.2d 1175 (5th Cir.
accent aici ieciietisiseligecis hich 12, 15
Tavoulareas v. Washington Post Co., 737 F.2d
1170 (D.C. Cir. 1984), cert. denied, 108 S. Ct.
a a a a i ede 19
Torres Vv. Oakland Scavenger Co., 108 S. Ct. 2405
I ea fe De ash cemmneianinoninin 11, 15
Under Sea Industries, Inc. v. Dacor Corp., 833
, g @.. 4: | eee 12, i3
United States v. Aluminum Co. of Am., 2 F. R. D.
224 (S.D.N.Y. 1941), on appeal, 329 U.S. 716
(1944), certified and transferred, 148 F.2d 416
I a eek haesneelieaiaaianbes 12
United States v. GAF Corp., 596 F.2d 10 (2d Cir.
gene er TARE STi ne cer ee yr a 21
Valentin v. Richardson, 110 F.R.D. 622 (D. Mass
eR MEAS ee eo TS SE Sse SIE MI an eR 29
Venen v. Sweet, 758 F.2d 117 (3d Cir. 1985)............ 9,14
W.R. Grace & Co. v. Local Union 759, 461 U.S.
cere 29
Zenith Radio Corp. v. Matsushita Elec. Indus.
Co., 529 F. Supp. 866 (E.D. Pa. 1981) ........... 23, 27
viii
TABLE OF AUTHORITIES—Continued
Constitutional Provision, Statute, Rules,
and Regulations: Page
MRI, Tt =. csetissnsmenisscinndanibecebanniontete passim
- 2k Fw ST ) | a eeeLe eee Dn ee NNEnrEn On 2
eG Pe I a cscactinenbanettntnnsneniienanmitinneband passim
RE 8 COR eae CET oe 7,8, 10, 15
ER 2 ERROR OCD Rm cor 8, 10,15
i ec = on eneeccietannalvannanns 9
kX” EER er cans OM mee Coe 7
Mandatory Petroleum Allecation Regulations, 10
oh ge EO RS |, (eee 3
Other Authorities:
9 J. Moore, B. Ward & J. Lucas, Moore’s Federal
I Te Sis Ds itinnntalestaninasninnintnsinsinternoccen 7
Manual for Complex Litigation (2d ed. 1986) ....... 23
Marcus, Myth and Reality in Protective Order
Litigation, 69 Cornell L. Rev. 1 (1983) ............. 23
16 C. Wright, A. Miller, E. Cooper & E. Gress-
man, Federal Practice and Procedure: Juris-
I CO cenit centicashicascicbinetescncnsecianacdbadateceiennbieas 9
IN THE
Supreme Cot of the United States
OCTOBER TERM, 1988
No.
TENNECO OIL COMPANY,
.. Petitioner,
KERN OIL & REFINING COMPANY,
Respondent.
PETITION FOR WRIT OF CERTIORARI TO THE
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
Petitioner Tenneco Oil Company respectfully prays that
a writ of certiorari issue to review the judgment and
opinion of the United States Court of Appeals for the
Ninth Circuit entered in the above-entitled proceeding on
March 7, 1988.
OPINIONS BELOW
The opinion of the Court of Appeals is reported at 840
F.2d 730 and is reprinted in the appendix hereto (“App.’’)
at la. The various opinions of the District Court are un-
reported and are reprinted at App. 24a, 28a, 3la, 39a,
46a, and 53a.
JURISDICTION
The District Court entered judgment against petitioner
on November 5, 1986. App. 50a. Petitioner filed a notice
of appeal on November 21, 1986. See App. 6a. Three
days later, on November 24, 1986, the District Court en-
tered its findings of fact and conclusions of law. App.
2
58a, 8la. The Court of Appeals affirmed on March 7, 1988,
App. la, and denied a timely-filed petition for rehearing
on May 19, 1988. App. 22a. On August 3, 1988, Justice
O'Connor entered an order extending the time to file a
petition for certiorari to and including September 16,
1988. App. 23a. The jurisdiction of this Court is invoked
under 28 U.S.C. § 1254(1).
PERTINENT CONSTITUTIONAL PROVISION
AND RULES
The pertinent parts of the First Amendment to the
United States Constitution and Fed. R. Civ. P. 26(c), 52,
and 59 are set forth at App. 87a.
STATEMENT OF THE CASE
In May 1977, Tenneco Oil Company (“Tenneco”) and
a predecessor to Kern Oil & Refining Company (“Kern’’)
entered into a contract under which Tenneco agreed to
sell and Kern agreed to purchase oil produced by Tenneco
from the Yowlumne oil field in California. The parties
soon came to disagree over the requirements of the con-
tract and of applicable regulations issued by the Depart-
ment of Energy (“DOE”). Kern responded by filing
three lawsuits in United States District Court for the
Central District of California, the last two of which are
the subject of this petition.’
In one of these—filed in July 1981—Kern alleged that
Tenneco violated DOE regulations. In the other—a di-
versity action filed in December 1982—Kern relied on the
same acts to allege a breach of the contract. The Dis-
trict Court consolidated these two actions. In essence,
Kern’s claim in the two suits was that Tenneco violated
1The first suit—filed in February 1981—concerned the price of
the oil subject to the contract. It proceeded independently of the
suits at issue in this case, which concern the supply of oil under the
contract. Kern Oil & Refining Co. v. Tenneco Oil Co., 792 F.2d 1380
(9th Cir. 1986), cert. denied, 107 S. Ct. 1349 (1987).
3
DOE regulations and the 1977 contract by failing to
supply Kern with all of the oil produced from the Yow-
lumne field. Tenneco contended that Kern was in fact
unable to accept all of the oil due to limits on its refining
capacity, and that Kern knowingly redelivered excess oil
to Tenneco under a separate 1978 contract.
During the pertinent time period, the DOE entitlements
program—designed to equalize the cost of “price con-
trolled” and “uncontrolled” oil to refiners—was in effect.
Refiners were required to purchase an “entitlement” to
refine “price controlled” oil and to report, under oath,
the number of price controlled barrels refined each month.
See Mandatory Petroleum Allocation Regulations, 10
C.F.R. § 211.1-.71 (1979). Instead, during the damage
period, Kern systematically refined price controlled oil
but reported to DOE that it was refining uncontrolled
oil. It did not purchase entitlements on such oil.
The operation of this program was directly pertinent
to Kern’s damage claim, in that the cost of entitlements
increased the cost of oil to Kern so substantially that Kern
would not have rationally purchased and refined the addi-
tional price controlled oil it was claiming from Tenneco.
Removing the price controlled barrels from Kern’s damage
claim would have reduced its damages by more than $6
million.
In early 1985, during the course of discovery, Tenneco
uncovered documents demonstrating that Kern had de-
frauded DOE by evading its obligations to purchase en-
titlements on the price controlled oil it refined. Tenneco
promptly moved in the District Court, on April 18, 1985,
for leave to disclose these documents to DOE. Such leave
was necessary because the parties had stipulated at the
outset of discovery to a routine umbrella protective or-
der, covering all documents and information obtained
through discovery. App. 83a.
4
The District Court, in September 1985, ordered Kern
to show “good cause” under Fed. R. Civ. P. 26(c) as to
why disclosure of the specified documents should not be
permitted. App. 25a. As the District Court itself noted,
however, “Kern elected not to make its showing of good
cause.” App. 25a. Instead, Kern argued that Tenneco
should be bound by the umbrella protective order even in
the absence of good cause. App. 26a. One month later,
on October 11, 1985, the District Court expressly found
that “Kern has failed to demonstrate good cause why the
disclosure of Exhibits B, D, G, E (apart from those docu-
ments listed in Exhibit B to Tenneco’s Second Supple-
mental Memorandum) and F (as revised) should not be
permitted * * *.” App. 29a. Despite the absence of “good
cause,” the court nonetheless barred Tenneco from turn-
ing the documents over to DOE on the grounds that
Tenneco was “bound by th{e] agreement” and that per-
mitting disclosure ‘can only result in further delay and
may further complicate and extend the present proceed-
ings with no assurance that positive and constructive re-
sults will be achieved.” App. 27a, 29a.
During the trial, the District Court closed the court-
room and evicted members of the public when the issue of
Kern’s fraud arose. The transcript reveals the following:
Mr. Sherwood [counsel for Kern]: [W]e would
request that the proceedings insofar as there be tes-
timony on that subject be closed, and that the tran-
script be sealed pending further order of the Court.
The Court: All right. Proceedings closed. Now,
what do you mean by that?
Mr. Sherwood: Well, we, as you may recall, re-
sisted the effort on the part of Tenneco to turn over
discovery materials to the DOE. We wish to make
sure that at least pending further order of the Court,
that insofar as these matters are presented in open
court either by testimony or by exhibit, that those
not be available for disclosure to anybody else, and
that the public, who may or may not have an exotic
Mageitae Behe
ie |
5
interest in the subject, be excluded from the court-
room.
The Court: Well, that’s consistent with my order,
and I think that order should continue.
* * * *
Proceedings will be closed. In light of that, I’m
going to ask you to excuse yourselves. Thank you.
[Ct. App. Excerpts of Record, at 1896-98. ]
The documents Tenneco wished to disclose to DOE were
then admitted into evidence in secrecy, and kept under
seal. On July 2, 1986, after the trial had concluded,
Tenneco moved yet again to unseal the trial record and
exhibits, so that it could reveal Kern’s fraud to DOE.
Id. at 963.
On August 28, 1986—still without having ruled on
Tenneco’s post-trial disclosure motion—the District Court
issued a decision on the merits, concluding that Kern was
entitled to collect from Tenneco some $32 million in dam-
ages, interest, and attorneys’ fees. App. 39a. In calcu-
lating damages, the court rejected Tenneco’s argument
based on the documents that Tenneco was barred from
showing to DOE, stating that Kern’s conduct “was not
violative of federal regulations” and that “the Depart-
ment of Energy made an audit of entitlements compli-
ance * * * and found Kern to be in compliance.’ App.
43a. DOE itself, of course, had not yet had any oppor-
tunity to address the question, since the District Court
had forbidden Tenneco from presenting its evidence of
Kern’s fraud to DOE, had closed the courtroom to pre-
vent disclosure of the evidence, and had yet to rule on
Tenneco’s post-trial motion to unseal the record. The
court’s Memorandum concluded by directing counsel for
Kern to prepare findings of fact and conclusions of law,
as well as a judgment. App. 45a.
On September 19, 1986, in response to a mandamus
petition filed by Tenneco, the Court of Appeals for the
6
Ninth Circuit in effect suggested that the District Court
rule on Tenneco’s post-trial disclosure motion within 14
days. On September 25, 1986, the District Court issued
an Order on the motion. The Order recognized the con-
flict in the Circuits over the First Amendment right of
access to records in a civil case, and noted that “this
issue has not been addressed by either the Ninth Circuit
or the Supreme Court.” App. 47a. The court granted
Tenneco’s motion for reasons that confirmed the grounds
on which it had earlier barred disclosure and closed the
courtroom:
Because this matter has now been tried, presentation
by Tenneco of the documents at issue to the DOE
will not delay proceedings before this Court. More-
over, when ruling on Tenneco’s original motion for
disclosure, this Court found that Kern had failed to
demonstrate good cause as to why the documents
should remain under seal. The Court now reaffirms
this finding. * * * There being no good cause for the
maintenance of the protective orders, those orders
are vacated insofar as they pertain to trial exhibits
received into evidence and to the trial transcript.
[App. 48a (emphasis supplied). ]
The court stayed its Order until October 3, 1986, and
Kern—relentlessly attempting to block disclosure of its
documents to DOE—sought a stay from the Ninth Circuit
and this Court. Both efforts failed and, on October 3—
eighteen months after seeking permission to contact DOE
—Tenneco was finally permitted to present the evidence
of Kern’s fraud to DOE. That agency immediately
opened an investigation of Kern, and on March 31, 1987,
issued a Proposed Remedial Order seeking $60 million
from Kern due to its fraud during the damage period.
The DOE order specified that Kern “reduced its post-
entitlements cost of crude oil below that which it would
have incurred if it had properly reported its controlled
tier crude oil receipts to the Entitlements Program,” that
7
transactions reported by Kern “never really took place”
and “were designed, in fact, ‘for the purpose of camou-
flaging the real deal’ from the DOE,” and that Kern
“unlawfully evaded its obligations under the Entitlements
Program.” ?
The disclosure and its resulting action by DOE, how-
ever, came too late to affect proceedings in the District
Court. On November 5, 1986, that court entered its
judgment against Tenneco. App. 50a. Tenneco filed its
notice of appeal on November 21, 1986.* Three days after
Tenneco’s notice of appeal—on November 24, 1986—the
District Court entered the findings of fact and conclusions
of law required under Fed. R. Civ. P. 52.
The Court of Appeals affirmed, rejecting Tenneco’s
argument that the notice of appeal divested the District
Court of jurisdiction to enter findings of fact and con-
clusions of law. According to the Ninth Circuit, “divesti-
ture of district court jurisdiction does not rest on a stat-
ute” but is rather a “ ‘judge-made doctrine’” that may
be departed from on a case-by-case basis.* The court held
that Tenneco “suffered no harm by the late filing,” re-
jecting Tenneco’s argument that the District Court’s be-
2 Ct. App. Excerpts of Record, at 3771, 3777. As required by law,
10 C.F.R. § 205.192(d), the Proposed Remedial Order was accom-
panied by a declaration of the DOE employee primarily knowledge-
able about the case that “to the best of my knowledge and belief,
the findings of fact are correct.” Ct. App. Excerpts of Record, at
3785. Kern has sought review of the Proposed Remedial Order.
3 Since the District Court’s unitary judgment included a claim
within the exclusive jurisdiction of the Temporary Emergency Court
of Appeals (“TECA”), Tenneco noted an appeal to that court as well
as the Ninth Circuit. Proceedings before TECA were stayed pend-
ing decision by the Ninth Circuit. On August 15, 1988, TECA issued
an order setting forth a briefing schedule, with briefing to be com-
plete by September 23, 1988.
4 App. 6a (quoting 9 J. Moore, B. Ward & J. Lucas, Moore’s
Federal Practice § 203.11, at 3-45 n.1 (2d ed. 1987)).
8
lated entry of its findings and conclusions deprived Ten-
neco of any opportunity to move for amended findings
and conclusions under Fed. R. Civ. P. 52(b) and 59(a).
According to the Court of Appeals, permitting Tenneco to
file such motions ‘“‘would be pointless.” App. 7a.
The Ninth Circuit also rejected Tenneco’s claim that
the District Court erred when it barred Tenneco from
presenting the evidence of Kern’s fraud to DOE in a
timely manner. Kern had supported its damage claims
at trial by arguing that it would have refined additional
price controlled oil from Tenneco. Now that the Kern
documents had at last been revealed to DOE, however,
the same Kern officials were taking the exact opposite
position in seeking to overturn the DOE Proposed Re-
medial Order. Kern was now arguing before DOE that
the cost of entitlements made price controlled oil too ex-
pensive to refine and that it would not have refined any
additional price controlled Tenneco oil. See App. 17a.
Tenneco contended before the Ninth Circuit that, had it
been able to reveal the documents to DOE in a timely
fashion, Kern would not have been able to take such in-
consistent positions, and the District Court could have
considered DOE’s findings—not just Tenneco’s arguments
—in assessing Kern’s damage claims. The Court of Ap-
peals, however, stated that the fact “[t]hat Kern is now
arguing a different theory to a different tribunal cer-
tainly weakens its new position, but does not make the
district court’s earlier conclusion clearly unsupported by
the evidence.”” App. 17a.
9
REASONS FOR GRANTING THE WRIT
I. The District Court Lacked Jurisdiction To Enter Find-
ings Of Fact And Conclusions Of Law After The Filing
Of A Notice Of Appeal
This Court recently held that “(t]he filing of a notice
of appeal is an event of jurisdictional significance—it
confers jurisdiction on the court of appeals and divests
the district court of its control over those aspects of the
case involved in the appeal.” Griggs v. Provident Con-
sumer Discount Co., 459 U.S. 56, 58 (1982). See Marrese
v. American Academy of Orthopaedic Surgeons, 470 U.S.
376, 379 (1985). Other Circuits have also recognized
that “‘upon the filing of the notice of appeal the district
court loses its power to take any further action in the
proceeding except in aid of the appeal, to correct clerical
mistakes under Fed. R. Civ. P. 60(a), or in aid of execu-
tion of a judgment that has not been stayed or super-
seded.”° The court below crafted another exception to
this fundamental principle of appellate jurisdiction. It
permitted the District Court to enter findings of fact and
conclusions of law after a proper notice of appeal had
divested that court of jurisdiction. Although “a federal
district court and a federal court of appeals should not
attempt to assert jurisdiction over a case simultaneously,”
Griggs, 459 U.S. at 58, that is precisely the result sanc-
tioned by the court below in this case.
5 Henry V. Farmer City State Bank, 808 F.2d 1228, 1240 (7th Cir.
1986). See, e.g., Nicol v. Gulf Fleet Supply Vessels, Inc., 743 F.2d
298, 299 (5th Cir. 1984); Rucker v. U.S. Dept. of Labor, 798 F.2d
891, 892 (6th Cir. 1986); Venen v. Sweet, 758 F.2d 117, 120 (3d
Cir. 1985) ; Garcia v. Burlington Northern R. Co., 818 F.2d 713, 721
(10th Cir. 1987). See also 16 C. Wright, A. Miller, E. Cooper &
E. Gressman, Federal Practice and Procedure: Jurisdiction § 3949,
at 359 (1977) (“So complete is this transfer of jurisdiction that any
orders of the district court touching upon the substance of the mat-
ter on appeal are considered null and void if entered subsequent to
the timely filing of the notice of appeal’’).
10
This Court long ago recognized the inherent prejudice
in permitting findings and conclusions to be entered after
an appeal has been taken from the underlying judgment.
Generes V. Bonnemer, 74 U.S. (7 Wall.) 564 (1869).°
Tenneco was left without hearing and without remedy
with respect to the findings and conclusions belatedly en-
tered by the District Court after the notice of appeal.
Although Rules 52(b) and 59(a) expressly provide a
means to correct erroneous findings or judgments, the
time to file such motions expired before the court even
entered its findings.
The Ninth Circuit justified its new exception on the
ground that adhering to the rule would result in ‘“need-
less paper shuffling.” App. 6a. The rule reiterated by
this Court in Griggs, however, is not a matter of discre-
tion, depending on the particular facts of each case. The
filing of a notice of appeal is an event of “jurisdictional
significance,” Griggs, 459 U.S. at 58, not simply a factor
to be considered in efficient docket control. As this Court
emphasized last Term, rules concerning the allocation of
jurisdiction between trial and appellate courts “should
above all be clear.” This is an area in which “[c]ourts
and litigants are best served by * * * bright-line rule[sj”
rather than case-by-case analysis of the sort engaged in
below. Budinich v. Becton Dickinson & Co., 108 S. Ct.
1717, 1722 (1988) .?
6 There, a unanimous Court noted:
To permit the judge to make a statement of facts, on which
the case shall be heard here, after the case is removed to this
court by the service of the writ of error, or even after it is
issued, would place the rights of parties who have judgments
of record, entirely in the power of the judge, without hearing
and without remedy. [/d. at 565. Accord Avendano v. Gay, 75
U.S. (8 Wall.) 376 (1869).]
7 See Christianson V. Colt Indus. Operating Corp., 108 S. Ct. 2166,
2178 (1988) (adhering to “age-old rule that a court may not in any
case, even in the interest of justice, extend its jurisdiction where
none exists,” despite recognition that such adherence would create
11
Other Circuits have recognized the “jurisdictional
significance” of a notice of appeal, repeatedly confirming
that a District Court lacks authority to act after a
proper notice of appeal, regardless of any apparent
wastefulness caused by adherence to this rule. Thus, in
Ced’s Inc. v. EPA, 745 F.2d 1092 (7th Cir. 1984), cert.
denied, 471 U.S. 1015 (1985), the Seventh Circuit held
that the trial court was wholly without jurisdiction, no
matter what the motivation, to issue additional grounds
supporting its ruling after a notice of appeal had been
filed. Id. at 1095. In Beliz v. W.H. McLeod & Sons
Packing Co., 765 F.2d 1317, 1326 (5th Cir. 1985), the
Fifth Circuit concluded that the District Court lacked
jurisdiction to enter an “order supplementing judgment”
after filing of the notice of appeal, even though the order
only clarified that certain plaintiffs were minors repre-
sented by their parents. And in Philadelphia Marine
Trade Ass’n v. International Longshoremen’s Ass’n,
Local 1291, 365 F.2d 295, 300 (38d Cir. 1966), rev’d on
other grounds, 389 U.S. 64 (1967), the Third Circuit
rejected a complaint that the District Court failed to
make findings of fact and conclusions of law, noting that
the fact that the other party had filed a proper notice of
appeal “precluded the trial Court from entering findings
of fact and conclusions of law even if they were required
in this instance.”
This question was hotly debated in the course of the
famous aluminum antitrust litigation, which culminated
in a final decision by the three senior judges of the Sec-
ond Circuit when a quorum of this Court was not avail-
wastefulness) ; Torres v. Oakland Scavenger Co., 108 S. Ct. 2405,
2409 n.3 (1988) (strict adherence to jurisdictional rule regarding
naming of parties taking appeal; rejecting argument that Court
“should apply ‘harmless error’ analysis to defects in a notice of
appeal. This argument misunderstands the nature of a jurisdictional
requirement” ).
12
able.* The trial judge in that case had delivered an oral
opinion announcing his intent to dismiss the Govern-
ment’s action. The Government thereupon urged the
court to enter judgment immediately without waiting for
the formal findings and conclusions required under Rule
52, in order “to enable it to get the case into the Supreme
Court at the earliest possible moment.” United States
v. Aluminum Company of America, 2 F.R.D. 224, 236
(S.D.N.Y. 1941). The court refused to do so, noting
that the Government’s planned immediate appeal would
divest the trial court of any jurisdiction to enter the re-
quired findings:
If a final order were entered and an appeal there-
from perfected, * * * clearly the jurisdiction of this
court to make findings would thereupon be at an
end. * * * I think that the Supreme Court has gone
further; it has specifically ruled, or at least strongly
indicated, that making findings is one of the things
as to which jurisdiction is terminated by an appeal
being perfected. [Id.]
The leading authority to the contrary is Silverthorne
v. Laird, 460 F.2d 1175 (5th Cir. 1972). There, the
trial court issued an opinion some four months after
the notice of appeal and two days before oral argument
of the appeal. The appellant argued that the notice had
divested the District Court of jurisdiction, but the Court
of Appeals disagreed, noting that the District Court’s
“amplified views are of great aid in this appeal.” Jd.
at 1178. This ruling, we submit, was in error.
More recently, the court in Under Sea Industries, Inc.
v. Dacor Corp., 833 F.2d 1551, 1555-59 (Fed. Cir. 1987),
ruled that findings and conclusions entered by the Dis-
trict Court two months after a proper notice of appeal
from the judgment were “valid,” and the appellate court
8 United States v. Aluminum Company of America, 322 U.S. 716
(1944), certified and transferred, 148 F.2d 416 (2d Cir. 1945).
a
EEE
eo oe
13
relied extensively upon those findings in affirming the
judgment. The court’s action in doing so, however, il-
lustrates the inevitable practical problems. The appellant
in Under Sea, confronted with entry of the District
Court’s findings and conclusions two months after his
appeal, quite naturally filed a second notice of appeal
from the findings and conclusions. The Federal Circuit
—although it relied heavily on the belated findings and
conclusions—nonetheless dismissed the appeal from those
findings and conclusions, noting that an appeal is proper
only from a judgment. Jd. at 1555-56.°
Judge Posner recently took note of this conflict, writ-
ing in response to a trial judge’s practice of deciding
bankruptcy cases orally but writing an opinion should
the losing party appeal. Matter of Jones, 768 F.2d 923,
930-932 (7th Cir. 1985) (concurring opinion). Judge
Posner remarked that
the practice raises a number of serious questions, of
which the most fundamental is whether it is author-
ized by law. The filing of the notice of appeal from
a final judgment ordinarily divests the district court
of jurisdiction over the case and shifts it to the court
of appeals * * *. [Jd. at 930.]
Noting the conflict on the question, Judge Posner con-
cluded that acceptance of such an exception “would on
balance impede rather than facilitate the appellate proc-
ess.” Jd. at 931. In particular, he noted that the prac-
* Indeed, the Federal Circuit, shortly after Under Sea, expressed
its discomfort with the filing of findings and conclusions after
notice of appeal. In Hybritech Inc. v. Abbott Laboratories, 849 F.2d
1446, 1450 (Fed. Cir. 1988), the court grudgingly upheld the prac-
tice once again, but cautioned that “[w]e * * * cannot condone, in
all cases, the procedure followed by the district court judge in this
case.” The court stated that it was preferable for the trial court
to refrain from entering an appealable order until after entry of
findings and conclusions. The contrary practice—endorsed by the
Ninth Circuit in this case—‘“can lead to wasted effort both by the
litigants and by the court.” Jd. at 1451.
14
tice can “throw[] off the appellate timetable” and “con-
verts the opinion-writing process from exploration to ra-
tionalization.” Jd. at 932.
The court below relied upon its own ad hoc view of
convenience and efficiency in creating an exception to the
Griggs rule. Other Circuits, however, have recognized
the danger in creating jurisdictional exceptions on that
basis. In Venen v. Sweet, supra, the District Court de-
nied a motion to dismiss based on judicial immunity, and
the defendant appealed. The District Court thereafter
reconsidered and dismissed the complaint on grounds of
immunity, and the plaintiff appealed. The Third Circuit,
relying on Griggs, held that the District Court had been
divested of jurisdiction by the first appeal, stressing that
“«fdjivest’ means what it says” and that “jurisdictional
requirements may not be disregarded for convenience
sake.” 758 F.2d at 120-121, 123. It vacated the post-
notice order and dismissed the second appeal, even though
this course would necessarily result in further proceed-
ings.
In Henry v. Farmer City State Bank, 808 F.2d at
1240-41, the Seventh Circuit held that a District Court
was without jurisdiction to enjoin state court litigation
commenced by plaintiffs, whose parallel claims were
thrown out of federal court, after the plaintiffs had ap-
pealed the dismissal. Even though the defendants had to
defend themselves “against litigation which at this point
appears to be without merit” and could refile their mo-
tion for an injunction when the case returned to the Dis-
trict Court, the Court of Appeals nonetheless properly
enforced the jurisdictional rule.
In Gormong Vv. Local Union 613, IBEW, 714 F.2d 1109
(llth Cir. 1983), the District Court granted plaintiffs’
motion to dismiss without prejudice, but the clerk errone-
ously entered judgment on the merits against plaintiff.
The plaintiff filed a notice of appeal and, four days later,
ieee alanine
15
the District Court sua sponte vacated the judgment. Al-
though there was no question concerning the proper dis-
position of the case, the Court of Appeals properly re-
fused to give effect to the District Court’s post-notice
order. Instead, the Court of Appeals engaged in what
the Ninth Circuit might dismiss as “needless paper
shuffling,” sending the case back to the District Court to
enter a proper order.’®
There is no “harmless error” rule when it comes to
jurisdiction. See Torres v. Oakiand Scavenger Co., 108
S. Ct. at 2409 n.3; Christianson v. Colt Indus. Operating
Corp., 108 S. Ct. at 2178. The Federal Rules contem-
plate that erroneous findings and conclusions will be
corrected prior to appeal; that is why Rules 52(b) and
59(a) authorize a District Court, upon motion of a party
within ten days after entry of judgment, to amend or
make new findings. Tenneco lost its opportunity under
these Rules to challenge the findings and conclusions
entered by the District Court, because they were entered
three days after the notice of appeal rather than within
ten days of the judgment. Tenneco’s time to challenge
the findings and conclusions expired before they were
even entered.
This lost opportunity was not, as the Court of Appeals
said, “pointless.” App. 7a. In considering the merits of
the contract dispute between the parties, the Ninth Cir-
cuit twice rejected arguments urged by Tenneco because
they were not raised below. Tenneco in fact intended
and was prepared to raise these arguments in the appro-
10 Jd. at 1110. Even the Circuit that spawned Silverthorne has
recognized the proper force of jurisdictional rules on other occa-
sions. See, e.g., Kirtland v. J. Ray McDermott & Co., 568 F.2d 1166,
1170 (5th Cir. 1978), in which the court rejected the contention
that “it is undesirable, indeed a mere technicality, to dismiss the
appeal and require the parties to make an unnecessary round trip
to the trial court.” This disturbing lack of uniformity is particu-
larly unsettling with respect to jurisdictional rules.
16
priate post-trial motions it was barred from filing by
the District Court’s delinquent entry of findings and con-
clusions. In addition, by the time the findings and con-
clusions were entered, Tenneco had at last been per-
mitted to present its evidence of Kern’s fraud to DOE,
and DOE had promptly opened an investigation of Kern.
DOE’s complaint against Kern came shortly thereafter.
Had the matter been pending before the District Court
at that time—due to post-trial motions by Tenneco—we
can only assume that the District Court would have
altered its findings and conclusions in the face of the
directly contrary views of DOE and the directly contrary
evidence now presented by Kern’s own witnesses.
II. The Courts Below Violated The First Amendment,
Rule 26(c), And Public Policy By Barring Tenneco
From Presenting The Evidence Of Kern’s Fraud To
The Appropriate Federal Regulatory Agency
The District Court enforced a prior restraint on free-
dom of speech by prohibiting Tenneco from presenting
documentary evidence of Kern’s fraud on DOE to that
agency, despite the express absence of “good cause”
under Rule 26(c) to bar disclosure. Tenneco moved for
permission to disclose the evidence of wrongdoing eight
months before the start of trial. The trial court’s failure
to permit disclosure on the ground that it might delay
trial—and its extreme steps of closing the courtroom to
the press and public, and sealing the trial record and ex-
hibits—contravened Tenneco’s First Amendment rights,
as well as Rule 26(c) and public policy.
Tenneco was directly harmed by the District Court’s
gag order. The concealment of Kern’s fraud on DOE
permitted Kern to argue at trial that it would have re-
fined oil allegedly withheld by Tenneco. The District
Court accepted this argument, increasing Kern’s alleged
damages. Now that the evidence shielded by the District
Court has at last been revealed to DOE, Kern is arguing
the opposite of what it argued before the District Court.
17
See App. 17a. Had Tenneco been permitted to reveal its
evidence to DOE in a timely fashion, Kern would have
been put to the choice before trial. At the very least,
its inconsistent positions—and the fact that DOE agreed
with Tenneco—would have refuted its argument before
the District Court."
A. The Decision Below Conflicts With This Court’s
Decision In Seattle Times
Four years ago, this Court addressed the relationship
between civil discovery and the First Amendment in
Seattle Times Co. v. Rhinehart, 467 U.S. 20 (1984). That
case arose out of a defamation action brought by mem-
bers of a religious sect. In the course of discovery, the
defendant publications requested production of the donor
lists of plaintiffs’ sect. The plaintiffs—fearing that pub-
lication of the lists by the media defendants would result
in harassment of the donors—moved for a protective or-
der, restricting defendants’ use of the information to
trial preparation only. The trial court entered the pro-
tective order and was upheld by the state Supreme Court.
This Court affirmed. Because the First Amendment
protects information acquired through discovery, the
Court demanded that any restraint on the dissemination
11 Tenneco’s disclosure argument was extensively briefed and
argued before the District Court, see Ct. App. Excerpts of Record, at
603, 607, 647, 679, 715, 746, 766, 821, 911, 955, 963, 1002, 1024, 1077,
clearly decided by that court, see App. 24a, 28a, 46a, and raised and
briefed before the Court of Appeals. See Appellant’s Br. at 1, 4-5,
38-42, 59, Reply Br. at 19. The Ninth Circuit obliquely stated that
Tenneco did not discuss the First Amendment. App. 16a n.10. As
noted, that statement is untrue and, in any event, the Court of
Appeals decided the disclosure claim, rejecting Tenneco’s argument
that it was harmed because the District Court “did not allow it to
reveal [the] documents to the DOE until after the trial * * *.” App.
16a. The disclosure issue, as developed below, hinges not only on the
First Amendment but Fed. R. Civ. P. 26(c), common law, considera-
tions of judicial administration, and public policy as well. It was
properly raised and preserved below.
18
of that information both further “ ‘an important or sub-
stantial governmental interest unrelated to the suppres-
sion of expression’”’ and restrict First Amendment free-
doms no more than “ ‘necessary or essential to the protec-
tion of the particular governmental interest involved.’ ”
Id. at 32 (quoting Procunier v. Martinez, 416 U.S. 396,
413 (1974)). In the case before it the Court identified
the prevention of discovery abuse in general and protec-
tion of the plaintiffs’ rights of privacy and religious as-
sociation in particular as substantial government inter-
ests, and concluded that a proper protective order could
promote these interests consistent with the First Amend-
ment. 467 U.S. at 34-35, 37 & n.24. The Court held
that where “a protective order is entered on a showing
of good cause as required by Rule 26(c), is limited to the
context of pretrial discovery, and does not restrict the
dissemination of the information if gained from other
sources, it does not offend the First Amendment.” Jd.
at 37 (emphasis supplied) .”
As this Court emphasized, the First Amendment is
not offended when dissemination of discovery material is
limited under a protective order “entered on a showing
of good cause.” Jd. at 37. Here, the District Court en-
forced a prior restraint on Tenneco after expressly find-
ing that “Kern has failed to demonstrate good cause why
the disclosure * * * should not be permitted.” App. 29a;
12 State rule 26(c) at issue in Seattle Times was the same as
Fed. R. Civ. P. 26(c). Justice Brennan, joined by Justice Marshall,
concurred, noting that “[t]he Court today recognizes that pretrial
protective orders, designed to limit the dissemination of information
gained through the civil discovery process, are subject to scrutiny
under the First Amendment.” 467 U.S. at 37. The concurring Jus-
tices “agree[d] that the [plaintiffs’] interests in privacy and reli-
gious freedom are sufficient to justify this protective order and to
overcome the protections afforded free expression by the First
Amendment.” Jd. at 38. No similar interests, of course, are impli-
cated in this case.
19
see App. 48a. The decision below thus conflicts sharply
with this Court’s opinion in Seattle Times.
It also conflicts on this score with the Second Circuit’s
recent decision in In re “Agent Orange” Product Liabil-
ity Litigation, 821 F.2d 189 (2d Cir.), cert. denied, 108
S. Ct. 344 (1987). The court there upheld the lifting of
a blanket protective order:
A plain reading of the language of Rule 26(c) dem-
onstrates that the party seeking a protective order
has the burden of showing that good cause exists for
issuance of that order. It is equally apparent that
the obverse also is true, i.e., if good cause is not
shown, the discovery materials in question should not
receive judicial protection and therefore would be
open to the public inspection. [821 F.2d at 145.]
The court noted that this conclusion was “implicit” in
Seattle Times. Id.
Since Seattle Times, the Circuits have not agreed on
the appropriate application of that decision. Some Cir-
cuits have held that First Amendment considerations
have no independent significance in the discovery proc-
ess, and that the only question is the existence of “good
cause” under Rule 26(c).%* The Third Circuit has gone
so far as to conclude that Seattle Times “confirmed’’ its
13 See, e.g., In re Alexander Grant & Co. Litigation, 820 F.2d 352,
356 (11th Cir. 1987) (“sole criterion for determining the validity
of a protective order is the statutory requirement of ‘good cause’ ’’) ;
Cipollone v. Liggett Group, Inc., 785 F.2d 1108, 1119 (3d Cir. 1986)
(“Cipollone I”) (Seattle Times “prohibits a court considering a
protective order from concerning itself with first amendment con-
siderations”) ; Tavoulareas v. Washington Post Co., 737 F.2d 1170,
1172 (D.C. Cir. 1984) (en banc) (assuming good cause, “the First
Amendment does not require a court to apply especially close scru-
tiny in deciding whether to give parties to a civil litigation * * * a
right to disseminate information gained through the pre-trial dis-
covery process. Proper application of the good cause requirement
* * * [is] a sufficient safeguard”), cert. denied, 108 S. Ct. 200
(1987).
20
view that “ ‘parties and counsel, by taking advantage of
or a part in the discovery processes, implicitly waive their
First Amendment rights freely to disclose or disseminate
the information obtained through those processes.’ ”’ ™*
The First Circuit, in contrast, has expressly noted that
“(wle do not agree with [the Third Circuit’s] inter-
pretation,” ruling instead that Seattle Times
means that first amendment considerations cannot be
ignored in reviewing discovery protective orders.
Although the “strict and heightened” scrutiny tests
no longer apply, the first amendment is still a pres-
ence in the review process. Protective discovery
orders are subject to first amendment scrutiny, but
that scrutiny must be made within the framework
of Rule 26(c)’s requirement of good cause. [Ander-
son V. Cryovac, Inc., 805 F.2d 1, 7 (1st Cir. 1986).]
Regardless of the approach, however, every Circuit to
address the question—other than the court below—has at
least insisted on the required showing of “good cause”
under Rule 26(c). And while the lower courts have not
settled on a uniform standard to measure “good cause,”
see Cipollone I, 785 F.2d at 1121 (“there appears to be
a lurking dispute as to what may constitute good cause
for a protective order’), even those Circuits holding that
the First Amendment has no independent significance in
this context have—perhaps because of that ruling—set a
high standard for “good cause.” The Third Circuit, for
example, has held that
the party seeking the protective order must show
good cause by demonstrating a particular need for
protection. Broad allegations of harm, unsubstan-
tiated by specific examples or articulated reasoning,
do not satisfy the Rule 26(c) test. [Jd.]
14 New York v. United States Metals Refining Co., 771 F.2d 796,
802 (3d Cir. 1985) (quoting Rodgers v. United States Steel Corp.,
536 F.2d 1001, 1006 (3d Cir. 1976) ).
21
The First Circuit similarly insists upon a “particular
factual demonstration of potential harm.” Cryovac, 805
F.2d at 7."
Here, the District Court expressly found that Kern had
failed to carry its burden of establishing ‘good cause,”
let alone establish it with particularized and specific dem-
onstrations of fact. Undaunted by this lack of showing,
however, the court nevertheless denied Tenneco’s disclos-
ure motion, on the basis of unsupported speculation that
disclosure could ‘only result in further delay and may
further complicate and extend the present proceedings
with no assurance that positive and constructive results
will be achieved.” App. 29a.?®
Whatever showing satisfies the “good cause” standard,
unfounded speculations of possible administrative incon-
venience to the court cannot suffice.'7 The Third Circuit
so held in Cipollone v. Liggett Group, Inc., 822 F.2d 335
(3d Cir.), cert. denied, 108 S. Ct. 487 (1987) (“Cipol--
lone II’). In Cipollone I, supra, the court directed the
15 See CBS, Inc. v. United States District Court, 765 F.2d 823,
825 (9th Cir. 1985), in which then-Judge Kennedy stated for the
court, in the context of a third-party request for documents filed in
a post-conviction proceeding, that “[t]he interest which overrides
the presumption of open procedures must be specified with particu-
larity, and there must be findings that the closure remedy is
narrowly confined to protect that interest.”
16 This reason rose up sua sponte from the court; after nearly five
months of ordered briefings on the motion, not even Kern contended
that the spectre of additional delay could meet the good cause
standard for Rule 26 and First Amendment purposes.
17 See United States v. GAF Corp., 596 F.2d 10, 15 (2d Cir. 1979)
(granting government access to discovery fruits of private litiga-
tion, noting, “‘[n]or are we impressed with the vague suggestion that
if the Government obtains copies of documents during the course of
litigation, that will somehow obstruct the management of the pri-
vate litigation”); Newman v. Graddick, 696 F.2d 796, 803 (11th
Cir. 1983) (rejecting concern over impact on docket as justification
for denying access to judicial records and hearings).
22
District Court on remand to consider whether good cause
existed for an umbrella protective order, previously en-
tered by a magistrate solely on the basis of case manage-
ment concerns. See 822 F.2d at 342. The District Court
on remand held that such concerns could not constitute
“good cause’, noting that under Rule 26(c) “the focus
is on injury to a specific individual, not on general con-
cerns of case administration.” 113 F.R.D. 86, 92 (D.N.J.
1986) (quoted in 822 F.2d at 342). The Third Circuit
agreed, concluding that the appropriate inquiry is “fo-
cused upon the issue of particular need for party protec-
tion, not upon general concerns of trial efficiency.” 822
F.2d at 343 (emphasis in original). Here, the District
Court expressly found that Kern—the party seeking pro-
tection—failed to establish good cause, and instead the
court relied upon “concerns of trial efficiency” in barring
disclosure.
B. The Decision Below Conflicts With Decisions From
The Third, Sixth, Seventh, And Eleventh Circuits
On The Implications Of Umbrella Protective Orders
The District Court also relied upon the umbrella pro-
tective order entered into by the parties at the outset of
discovery, concluding that ‘‘Tenneco is bound by this
agreement.” App. 27a. The agreement, stipulated to by
the parties and signed as “so ordered” by the District
Judge, provided that all discovery materials were
“deemed” confidential unless the providing party desig-
nated otherwise.'* Such orders are increasingly common—
indeed, routine in large and complex litigation.’ This
18 Paragraph five of the agreement provided that a party wishing
to disclose the contents of subject documents may seek consent from
the opposing party, and that such consent “shall not be unreason-
ably withheld.” If consent is not granted, the agreement specified
that the requesting party may move the court for an order permit-
ting disclosure—the course followed by Tenneco. App. 84a-85a.
19 Judge Becker noted in 1981 that “[w]Je are unaware of any case
in the past half-dozen years of even a modicum of complexity where
om:
ANN RA NI A ASE BNW Bas WEL A. PN Son tn Ti Ey ee ern oe ee ae tee ee OES
ne eee
23
Court has not yet considered the effect of such orders on
the “good cause” requirement of Rule 26(c), and the
lower courts have adopted sharply conflicting approaches,
both before and after Seattle Times.”
The court in this case assumed that the stipulated um-
brella order changed the good cause requirement, shifting
the burden to Tenneco to justify disclosure, rather than
leaving the burden on Kern to justify barring disclosure
of specific documents. It thus upheld a prior restraint
barring Tenneco from disclosing the documents, in the
face of an undisturbed finding that Kern had failed to
demonstrate good cause why disclosure should not be per-
mitted. App. 29a, 48a. There is apparently some support
for such an approach."
Most courts, however, recognize that the party resist-
ing disclosure continues to bear the burden of establish-
ing “good cause,” even if the documents in question are
subject to an umbrella protective order. For example, the
an umbrella protective order * * * has not been agreed to by
the parties and approved by the court.” Zenith Radio Corp. Vv.
Matsushita Elec. Indus. Co., 529 F. Supp. 866, 889 (E.D. Pa. 1981).
See Manual for Complex Litigation § 21.431 (2d ed. 1986); Marcus,
Myth and Reality in Protective Order Litigation, 69 Cornell L. Rev.
1, 9 (1983) (umbrella protective orders “have become the norm in
many areas of federal practice’).
2° The agreement in this case nowhere stated that it was entered
into by the parties or ordered by the court for good cause shown.
21 See, e.g., GAF Corp. v. Eastman Kodak Co., 415 F. Supp. 129
(S.D.N.Y. 1976); Data Digests, Inc. v. Standard & Poor’s Corp.,
57 F.R.D. 42 (S.D.N.Y. 1972); Oklahoma Hospital Ass’n v. Okla-
homa Publishing Co., 748 F.2d 1421, 1425 (10th Cir. 1984) (reject-
ing, without good cause showing, nonparty publisher’s request for
access to documents produced under stipulated protective order),
cert. denied, 473 U.S. 905 (1985); Martindell v. IT&T, 594 F.2d 291
(2d Cir. 1979); id. at 298 (Medina, J., concurring); cf. American
Tel. & Tel. Co. Vv. Grady, 594 F.2d 594 (7th Cir. 1978) (nonparty
movant desiring access to protected documents bears higher burden
where parties agreed to order), cert. denied, 440 U.S. 971 (1979).
24
Eleventh Circuit recently emphasized that “[u]nder the
provisions of umbrella orders, the burden of proof jus-
tifying the need for the protective order remains on the
movant; only the burden of raising the issue of confiden-
tiality with respect to individual documents shifts to the
other party.” In re Alexander Grant, 820 F.2d at 356.
The Third Circuit has noted that “any other conclusion
would turn Rule 26(c) on its head,” ruling that the um-
brella order must as a threshold matter be based on a
showing of good cause, and that the party opposing dis-
closure thereafter has “the burden of proof in justifying
the protective order with respect to * * * documents” the
other party wishes to disclose. Cipollone I, 785 F.2d at
1122.
In Brown & Williamson Tobacco Corp. v. FTC, 710
F.2d 1165 (6th Cir. 1983), cert. denied, 465 U.S. 1100
(1984), the trial judge placed a seal on the entire record
in the case, barring one of the parties—the FTC—from
disclosing information contained in court documents. The
Sixth Circuit reversed, concluding that “the District
Court erred by failing to state findings or conclusions
which justify nondisclosure to the public.” Jd. at 1176.
The court vacated the seal order, concluding that “the
natural desire of parties to shield prejudicial information
contained in judicial records” did not justify secrecy. Jd.
at 1180.
The Seventh Circuit has similarly refused to give effect
to an umbrella protective order when there was no good
cause to block disclosure of specific documents. Matter
of Continental Illinois Securities Litigation, 732 F.2d
1302 (7th Cir. 1984). In that case, as here, a protective
order was “agreed to by the parties and entered by the
district court,” but the Court of Appeals nonetheless up-
held the District Court’s decision to permit disclosure of
documents. Jd. at 1310-16. The appellate court noted
that “good cause” for the protective order was never
shown—as the District Court in the present case ex-
ee
25
pressly found—and that in the absence of such a showing
disclosure was required. Jd. at 1311.
Contrary to the District Court in this case, other trial
judges have recognized that umbrella protective orders
cannot shift the burden of showing good cause under
Rule 26(c). See, e.g., In re Coordinated Pretrial Pro-
ceedings in Petroleum Products Antitrust Litigation, 101
F.R.D. 34, 44 (C.D. Cal. 1984) (‘To reverse the burden
in this situation would be to impose a significant and per-
haps overpowering impairment on the public access
right”). The District Court in In re “Agent Orange,”
104 F.R.D. 559, 570 (E.D.N.Y. 1985), noted the con-
flict on the question, concluding that:
Seattle Times tips the balance in favor of not shift-
ing the burden. The Court in Seattle Times ap-
proved a limitation on First Amendment rights upon
a showing of good cause. In the absence of such a
showing, continued protection would violate the First
Amendment * * *,!*?!
The extraordinary degree to which the courts below
infringed upon Tenneco’s rights is highlighted by a com-
parison of the present case with In re The Reporters
Committee for Freedom of the Press, 773 F.2d 13825
(D.C. Cir. 1985). A divided court in that case held that
the press had no right of access to court records until
after judgment in the civil case. The court’s opinion, by
then-Judge Scalia, emphasized that the appropriate
analysis might be different “where not an implied right
of access but the expressly protected right of ‘freedom of
speech’ was at issue.” Jd. at 1332 n.5. The majority
stressed that the case before it involved no closing of the
courtroom, and that to the extent documents were re-
vealed in open court they were made public, so there was
22 In affirming the District Court, the Second Circuit stated that
it “need not reach” the burden of proof issue, because disclosure was
warranted regardless of how the burden was allocated. 821 F.2d
at 147.
26
not “the kind of outcry which closing of a trial usually
excites.” Jd. at 1337. The court also noted that the pro-
tective order in question was based on an affidavit estab-
lishing good cause, and that the order specified that the
party resisting disclosure continued to bear the burden of
showing good cause. Jd. at 1326.
Here, all of these caveats were ignored. This case in-
volves not a third party’s “implied right of access” but
Tenneco’s expressly protected right to speak and to peti-
tion the government. The trial court took the extreme
step of evicting the public and closing the courtroom on
the basis of the umbrella protective order, entered by stip-
ulation of the parties without any showing of good cause,
either ab initio or when disclosure was requested by Ten-
neco.
The courts themselves have noted the persistent con-
flict and confusion in this area.“ Indeed, many of the
23 See, e.g., Anderson v. Cryovac, Inc., 805 F.2d at 6-7 (expressly
disagreeing with Third Circuit on implications of Seattle Times) ;
In re “Agent Orange,” 104 F.R.D. at 568-569 (“A number of cases
conclude that on a motion to lift a protective order the burden re-
mains on the party seeking continued protection to show good cause
for that continuation. * * * However, another line of authority
exists”) ; GAF Corp. v. Eastman Kodak Co., 415 F. Supp. at 130-131
(reviewing conflicting precedent); Sharjah Inv. Co., Ltd. v. P.C.
Telemart, Inc., 107 F.R.D. 81, 83 n.1 (S.D.N.Y. 1985) (noting criti-
cisms of GAF and concluding that “[a]lthough there are many
similarities between GAF and this case, * * * the court will not
follow GAF’”’) ; Cipollone I, 785 F.2d at 1121 (“lurking dispute” over
good cause); id. at 1118 (“unclear whether Seattle Times mandated
a Rule 26(c) analysis without regard to the first amendment, or
whether it required an analysis that included a strict least restric-
tive means test”); Continental Illinois Securities Litigation, 732
F.2c at 1309 n.11 (expressly disagreeing with D.C. Circuit reading
of Supreme Court precedent) ; Petroleum Products Antitrust Litiga-
tion, 101 F.R.D. at 38 (“these decisions are conflicting with regard
to the scope of the right in civil cases and whether it is based upon
the common law or derives only from the Federal Rules of Civil
Procedure”); Applications of NBC, 828 F.2d 340, 351 (6th Cir.
27
leading cases have been decided by sharply divided pan-
els.* The question presented is of continuing practical
importance in the handling of complex litigation. As one
judge noted, it is “one of the most difficult and vexatious
issues judges confront in managing complex litigation—
the access and First Amendment rights of litigants and
the public in connection with the large quantity of docu-
ments that is marked confidential pursuant to a protec-
tive order such as is entered to facilitate discovery in
virtually every complex case.” Zenith Radio Corp. v.
Matsushita Elec. Indus. Co., 529 F. Supp. at 872.
This case provides an ideal vehicle for resolving the
confusion and uncertainty evident in the lower courts.
The express finding by the District Court that Kern had
failed to establish good cause presents starkly tne ques-
tion whether such a showing is required in the case of an
umbrella protective order, or if the burden has shifted to
the other party to show cause for disclosure. There is no
1987) (Ryan, J., dissenting) (“Some courts appeared to ignore or
distinguish Seattle Times * * *. Other circuits appezr to have
followed the apparent mandate of Seatile Times’’).
24 See, e.g., Continental Illinois Securities Litigation, 732 F.2d at
1320 (majority recognizes right to disclose records submitted under
an umbrella protective order; Pell, J., dissents: “The phrase ‘under
seal’ would seem to me to be a term of art, a closed door to public
dissemination”) ; In re Alexander Grant, 820 F.2d at 358 (majority
enforces protective order upon finding good cause; Clark, J., dis-
sents: there was no “consideration by the district court of the
public right of access. To the contrary, in this case, the parties,
including the public entities, stipulated to the consent order’);
In re Reporters Committee, 773 F.2d at 1342, 1347 (Wright, J.,
dissenting, describing majority opinion as “[c]lontrary to the view
of other United States Courts of Appeals” and stating, “I find
myself in agreement with those Courts of Appeals that have found
that the First Amendment provides a presumptive right of con-
temporaneous access to materials admitted into evidence in a civil
proceeding”) ; Cipollone II, 822 F.2d at 347-349 (Garth, J., dissent-
ing, on ground that District Court failed to enter express findings
on “good cause’”’).
28
confusion on that finding; the District Court entered it
when barring disclosure before trial, and affirmed it in
finally granting disclosure after decision. App. 29a, 48a.
Nor is this case complicated by questions of third party
access; the holding “falls directly within the text of the
constitutional provision” concerning Tenneco’s “expressly
protected right of ‘freedom of speech.’” In re Reporters
Committee, 773 F.2d at 1332 n.5. There is no issue of
potential abuse of the discovery process. Tenneco did not
even seek to disclose the “smoking gun” documents pub-
licly, but only to turn them over to the responsible fed-
eral agency, DOE, and Kern conceded that DOE would
keep the documents confidential. App. 25a. The extent of
the District Court’s prior restraint is also starkly pre-
sented, with the extreme step of evicting the public and
closing the courtroom. And there is no doubt about the
practical effects of the court’s action: as soon as Ten-
neco was able to disclose the documents to DOE, that
agency entered a Proposed Order finding, in direct con-
trast to the District Court ruling, that Kern had violated
the entitlements program.
C. The Decision Below Violates Public Policy
The District Court, in effect, allowed its good offices
to become involved in a coverup. Only a court order pre-
vented Tenneco from doing its public duty and passing
on to DOE documents establishing that Kern had com-
mitted fraud on that agency. Every day of delay in dis-
closing the information allowed the concealment of the
fraud from DOE to be perpetuated. The result was not
only the denial of Tenneco’s rights but a direct contra-
vention of the public policy requiring each citizen promptly
to inform the Government when it is being defrauded. A
logical extension of the ruling below would mean, for ex-
ample, that while two parties litigated over responsibility
for a tax payment, one of the parties could be prevented
from revealing to IRS uncontradicted evidence that the
other had cheated on the very taxes at issue.
29
Public policy commands a different view. It must be
that no court, absent the most dire circumstances, can
prevent a party to a lawsuit from reporting to the United
States Government demonstrated facts showing that the
Government is being defrauded. This was not a case,
after all, where the Government already possessed the
relevant information and could, through its own vast re-
sources, obtain the documents itself; * where the evidence
was given under Fifth Amendment assumptions that it
would not be turned over te the Government; or where
civil discovery was being used illicitly to obtain informa-
tion for governmental purposes.” Here, totally unbe-
knownst to the Government, evidence of fraud appeared
in the record of a case to which it was not a party, and
even the fact of fraud could not be transmitted to the
Government, although the protective order had never been
designed to anticipate and foreclose such disclosure. Nor
were these inadvertent, technical exceedances of some ar-
cane set of principles. These were deliberate violations
of serious and specific laws and regulations with which
this long-operative and experienced oil refiner was thor-
oughly familiar.
This Court should resolve the conflict and confusion
over this subject and hold that courts are not. free to en-
force protective agreements that violate public policy.”
Under circumstances like these, a litigant “may make any
lawful use of the information which comes to light dur-
ing this proceeding.” ” Indeed, he has an obligation to
do so, and no court should stand in his way.
* Cf. GAF Corp. Vv. Eastman Kodak Co., 415 F. Supp. at 132;
Data Digests, Inc. v. Siandard & Poor’s Corp., 57 F.R.D. at 44.
*6 Cf. Valentin Vv. Richardson, 110 F.R.D. 622, 628 (D. Mass. 1986).
*7 Cf. Essex Wire Corp. v. Eastern Electric Sales Co., 48 F.R.D.
308, 312 (E.D. Pa. 1969).
*8 See W.R. Grace & Co. v. Local Union 759, 461 U.S. 757, 766
(1983).
29 Essex Wire Corp., 48 F.R.D. at 312.
30
CONCLUSION
For the foregoing reasons, this Court shouid grant the
writ and reverse the decision of the court below.
Respectfully submitted,
Of Counsel: E. BARRETT PRETTYMAN, JR.*
JAMES R. MARTIN JOHN G. ROBERTS, JR.
MARK E. WEBER BARBARA L. SLOAN
GIBSON, DUNN & CRUTCHER HOGAN & HARTSON
333 South Grand Avenue 555 Thirteenth Street, N.W.
Los Angeles, CA 90071 Washington, D.C. 20004
(213) 229-7000 (202) 637-5685
JOHN P. MATHIS Counsel for Petitioner
JANE G. ADAMS
BAEER & BOTTS
555 Thirteenth Street, N.W.
Washington, D.C. 20004
(202) 639-7700
Boyp L. HENDERSON
ALFRED B. SMITH, JR.
TENNECO OIL COMPANY
1010 Milam Street
Suite 2240
Houston, Texas 77001
(713) 757-3078 * Counsel of Record
APPENDICES
la
APPENDIX A
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
Nos. 86-6674; 87-5743
D.C. Nos. CV-81-3253-LEW ; CV-81-6875
KERN OIL & REFINING Co.,
Plaintiff /Counter-Defendant/
“. Appellee,
TENNECO OIL COMPANY,
Defendant/Counter-Claimant/
Appellant.
Appeal from the United States District Court
for the Central District of California
Laughlin E. Waters, District Judge, Presiding
Argued and Submitted
December 10, 1987—Pasadena, California
Filed March 7, 1988
Before: Joseph T. Sneed and Harry Pregerson, Circuit
Judges, and William A. Ingram,* District Judge
Opinion by Judge Sneed
James R. Martin, Gibson, Dunn & Crutcher, Los An-
geles, California, for the cefendant/counter-claimant/
appellant.
* Honorable William A. Ingram, United States District Judge,
Northern District of California, sitting by designation.
2a
Richard E. Sherwood, O’Melveny & Myers, Los An-
geles, California, for the plaintiff/counter-defendant/
appellee.
OPINION
SNEED, Circuit Judge:
Tenneco Oil Company appeals from a district court
judgment awarding $32 million in damages, interest,
and attorneys’ fees to Kern Oil & Refining Company for
Tenneco’s breach of contract and fraud. We affirm.
I.
FACTS AND PROCEEDINGS BELOW
Kern Oil & Refining Company (Kern) is a crude oil
refiner whose refinery is located in Bakersfield, Califor-
nia. Kern has no crude oil production of its own and
therefore must acquire from others the crude it runs
through its refinery. Tenneco Oil Company (Tenneco)
is an “integrated” oil company with crude production in
California and elsewhere, a refinery in Louisiana, and
marketing facilities around the country.
In October 1975, Kern and Tenneco agreed that Kern
would purchase oil from Tenneco’s fields in Yowlumne,
California. As Tenneco brought new Yowlumne fields
into production, it sold most of that oil to Kern as well.
In May 1977, Kern and Tenneco entered into a contract
that formally committed Tenneco to sell Kern all crude
produced by Yowlumne properties from which Kern was
already purchasing crude.’ The trial court found that
at about the same time, “Kern and Tenneco orally agreed
that Tenneco would sell to Kern, under the terms of the
May 1977 contract, crude from all Yowlumne properties
coming into production after May 1977.” Findings of
Fact and Conclusions of Law, Excerpt of Record (E.R.)
at 263.
4 Kern and Tenneco agreed that Texas law would govern disputes
as to this and subsequent contracts between them.
5 ae a at Ti ‘
3a
Circumstances changed in the spring of 1978. Tenneco
then learned that a pipeline would soon be open which
could transport Tenneco’s Yowlumne crude across the
Rockies. From east of the Rockies, the oil could be easily
traded for crude supply for Tenneco’s Louisiana refinery.
The court found that “Tenneco wanted to keep for itself
the Yowlumne crude that it had agreed to sell to Kern.”
E.R. at 265. Tenneco faced two obstacles in attempting
to keep the Yowlumne oil for itself.
The first obstacle was a practical one pertaining to
Tenneco’s access to the new pipeline. Tenneco’s only way
to the new pipeline was through a small Texaco pipeline,
to which Tenneco did not have access. Kern, however,
did have a contractual right to use the Texaco pipeline.
Therefore, Tenneco proposed to Kern that Kern transport
Tenneco’s oil through the Texaco pipeline. This proposal
also brought into focus the second obstacle—Kern’s con-
tractual and regulatory claims to Tenneco’s Yowlumne
oil. Because at the time of this proposal Tenneco’s Yow-
lumne fields were producing more oil than Kern could
refine, it did not meet with a flat rejection. Kern argued
at trial that Tenneco met its concerns by fraudulently
promising Kern that Tenneco would not leave Kern with-
out a sufficient supply for Kern’s refinery. Relying on
that promise, and believing that it was not jeopardizing
its own supply, Kern agreed in July 1978 to transport
some of Tenneco’s Yowlumne crude through the Texaco
pipeline. Tenneco’s interpretation of the July 1978 con-
tract substantially differs from Kern’s. Tenneco argued
at trial that the May 1977 contract already gave Kern
title to Tenneco’s Yowlumne oil, and that the July 1978
contract was not a transportation agreement but a
straight sale of some of the Yowlumne oil back to Ten-
neco. The district court agreed with Kern, and found
that the July 1978 contract was a transportation agree-
ment, which Tenneco fraudulently induced Kern to sign.
By January 1979, Kern was aware that Tenneco did
not agree with Kern’s interpretation of the May 1977
4a
and July 1978 contracts, and did not intend to supply
the Kern refinery’s needs. This became of greater im-
portance to Kern than previously because it contemplated
expanding its refinery capacity. In February 1979, Kern
filed a complaint with the U.S. Department of Energy
alleging that Tenneco had violated federal regulations.
In the same month, Kern and Tenneco replaced the July
1978 agreement with an explicit transportation agree-
ment, “fulfilling the same function and serving the same
purpose as the July 1978 agreement.” E.R. at 269. The
February 1979 agreement was not intended to affect any
claims either party might have under the earlier agree-
ments. It remained in effect until 1981.
Tenneco’s conduct did not damage Kern until April
1979, when Kern completed the expansion of its refinery.
From April 1979-through November 1980, Kern would
“have processed nearly two million barrels of the Yow-
lumne crude that Tenneco failed to deliver. As a result,
it lost nearly $17 million in profit.
In July 1981, five months after the filing by Kern of
a suit against Tenneco alleging that Tenneco overcharged
Kern under the May 1977 contract, Kern filed a com-
plaint against Tenneco in the Central District of Cali-
fornia alleging violations of federal regulations. In De-
cember 1982, Kern filed a complaint based on the same
acts and alleging contractual breaches. In 1983, the dis-
trict court consolidated the two latter complaints. The
overcharge case proceeded separately.
This case was tried in December 1985 and January
1986. In November 1986, the court entered judgment for
Kern and awarded it some $32 million in damages, inter-
est, and attorneys’ fees, including sanctions under Fed-
eral Rule of Civil Procedure 11. The court held that by
failing to sell Kern all of the oil produced by the Yow-
lumne fields in question, Tenneco violated the Mandatory
Petroleum Allocation Regulations, 10 C.F.R. Pt. 211
(1987), and breached the May 1977 contract. E.R. at
5a
276-85. In addition, the court held that Tenneco had com-
mitted fraud and misrepresentation in convincing Kern
to sign the July 1978 contract. E.R. at 285-86.
Tenneco appealed the decision on the regulatory cause
of action to the Temporary Emergency Court of Appeals
and the decision on the contractual causes of action to
this court.
II.
JURISDICTION
The district court had diversity jurisdiction under 28
U.S.C. § 13832 (1982). This court’s jurisdiction rests on
28 U.S.C. § 1291 (1982).
III.
DISCUSSION
Tenneco presents numerous arguments. Their descrip-
tive designations, which this opinion will employ, are as
follows:
A. Absence of Jurisdiction of District Court to En-
ter Findings of Fact and Conclusions of Law.
B. Grounds for Dismissal of Kern’s Claims.
1. Res Judicata.
2. Statute of Limitations.
3. Waiver by Kern’s Course of Performance.
C. Damages Erroneously Determined.
1. 90-Day Notice Period as a Limitation on
Damages.
2. Kern’s Duty to Mitigate.
3. Evidentiary Support for Damages.
D. Prejudgment Interest Not Allowable.
Cs
Rule 11 Sanctions Not Proper.
6a
We now turn to these arguments in the order set out
above.
A. Absence of Jurisdiction of District Court to Enter
Findings of Fact and Conclusions of Law
On October 10, 1986, the district judge signed his find-
ings of fact and conclusions of law, as well as his final
judgment. The latter was filed on November 5 but the
findings of fact and conclusions of law were not entered
until November 24, 1986. Tenneco’s notice of appeal was
filed on November 21, three days before the findings and
conclusions were entered.
Tenneco argues that filing its notice of appeal stripped
the district court of its jurisdiction to enter findings of
fact and conclusions of law. It is true that filing a notice
of appeal usually divests the district court of jurisdiction
over the matters appealed. McClatchy Newspapers v.
Central Valley Typographical Union No. 46, 686 F.2d
731, 734 (9th Cir.), cert. denied, 459 U.S. 1071 (1982).
We have, for example, refused to consider amended find-
ings of fact and conclusions of law filed after a notice
of appeal. See Sumida v. Yumen, 409 F.2d 654, 656-57
(9th Cir. 1969).
This divestiture of district court jurisdiction does not
rest on a statute. See Hoffman v. Beer Drivers & Sales-
men’s Local Union No. 888, 536 F.2d 1268, 1276 (9th
Cir. 1976). Rather, it is a “judge-made doctrine designed
to avoid the confusion and waste of time that might flow
from putting the same issues before two courts at the
same time. It should not be employed to defeat its pur-
poses nor to induce needless paper shuffling.” 9 J. Moore,
B. Ward & J. Lucas, Moore’s Federal Practice § 203.11,
at 3-45 n.1 (2d ed. 1987). Tenneco’s arguments would “‘in-
duce needless paper shuffling.” Our acceptance of Ten-
neco’s position would not lead to a decision on the merits
for Tenneco but only to a remand to the district court
to file its findings and conclusions. Another appeal would
Ta
then be taken by Tenneco and next year, perhaps, we
would get the case back. A better example of “needless
paper shuffling” would be hard to imagine.
This case differs from Sumida, supra, in which the
district court filed both an order and findings and con-
clusions, and, after the notice of appeal was filed, at-
tempted to amend both. We properly treated the appeal
as one from the earlier filed order. The appellate court
is entitled to review a fixed, rather than a mobile, record.
Here the district court did not attempt to move the tar-
get; it merely set one in place. It is clear to us that the
findings and conclusions were intended to be filed at the
same time as the final judgment. We will treat them as
having been so filed.
Tenneco insists that it was deprived of its opportunity
to move for amended findings and conclusions, Fed. R.
Civ. P. 52(b), and to move for a new trial or an amended
judgment, Fed. R. Civ. P. 59(b), (e). We are unper-
suaded. Tenneco knew that the district court was prepar-
ing findings and conclusions; indeed, it had filed a lengthy
memorandum in opposition to Kern’s proposed findings
and conclusions. Neither did it inform the court that it
had not received the findings and conclusions nor did it
ask for an extension of time. Doing neither of these
things indicates that Tenneco was unconcerned about the
deadlines for a Rule 52 or 59 motion and suffered no
harm by the late filing. To remand to the district court
to enable Tenneco to file still another opposition, styled
a motion to amend, to the same findings and conclusions
would be pointless.
Tenneco also complains of the district judge’s near-
complete acceptance of the findings and conclusions pre-
pared by Kern. In Unt v. Aerospace Corp., 765 F.2d 1440
(9th Cir. 1985), this court said, ‘““‘We have previously dis-
approved of the mechanical adoption of findings and con-
clusions prepared by the victorious party. The verbatim
adoption of findings suggested by a party is not auto-
8a
matically objectionable, however, so long as those findings
are supported by the record.” Jd. at 1444-45 (citation
omitted). Tenneco points to no evidence to show that the
findings and conclusions were not supported by the record.
B. Grounds for Dismissal of Kern’s Claims
1. Res Judicata
We have already mentioned the regulatory case now
on appeal to the Temporary Emergency Court of Appeals.
In addition to that case there was yet another. In Janu-
ary 1981, five months before the filing in the case, Kern
filed suit against Tenneco in district court, alleging that
Tenneco breached the May 1977 contract by charging
excessive prices. In the summer of 1984, Kern received
a judgment in its favor. This court affirmed the judg-
ment in Kern Oil & Refining Co. v. Tenneco Oil Co.,
792 F.2d 1380 (9th Cir. 1986), cert. denied, 107 S. Ct.
1349 (1987). We shall refer to this, the earlier case,
as the “price case,” and to the case before us as the
“supply case.”
Tenneco now invokes res judicata and argues that the
price case should bar recovery by Kern in the supply case.
Kern responds that Tenneco has waived its right to in-
voke res judicata. We review this issue de novo. See
Harbeson v. Parke Davis, Inc., 746 F.2d 517, 520 (9th
Cir. 1984).
Tenneco’s principal obstacle is Fed. R. Civ. P. 8(c),
which includes res judicata as an affirmative defense that
must be raised in the pleadings. Tenneco admits that it
did net do so. Therefore, the defense is waived. Fount-
Wip, Inc. v. Reddi-Wip, Inc., 568 F.2d 1296, 1300 n.1
(9th Cir. 1978); Weekes v. Atlantic Nat’l Ins. Co., 370
F.2d 264, 271 (9th Cir. 1966); Hernandez v. Heckler,
621 F. Supp. 439, 442 n.2 (N.D. Cal. 1985).
It is true that we have allowed a party to raise res
judicata after the initial pleadings by construing the at-
A
9a
tempt as a motion to file a supplemental answer. See
Harbeson, 746 F.2d at 520. This does not help Tenneco
because we have always required that it be raised before
trial. Tenneco did not raise it until after the end of the
trial.2, Moreover, Tenneco, by never objecting to separate
trials of the price and supply cases,*? cannot now object
to their being split. Restatement (Second) of Judgments
§ 26(1) (a) (1982).*
2. The statute of limitations
Tenneco next invokes statutes of limitations with re-
spect to Kern’s contract and fraud claims. The contract
claim is subject to a four-year statute of limitations,
Tex. Bus. & Com. Code Ann. § 2.725 (Vernon 1968),
and the fraud claim is subject to a three-year statute of
limitations. Cal. Civ. Proc. Code § 338(4) (Deering
1972). The contract claim was filed in December 1982,
and the complaint was amended to include a fraud claim
in September 1983. The date of accrual of these claims
is disputed. Tenneco asserts that the contract claim ac-
2In July 1986, two years after the district court’s decision in the
price case, seven months after the court had ruled in Kern’s favor on
the liability issues in the supply case, and immediately after we
affirmed the price case, Tenneco moved the court to dismiss Kern’s
claims on res judicata grounds. The court pointed out that Tenneco
had not needed to wait until the appeal of the price case was decided
to bring up the issue. E.R. at 1893. See Restatement (Second) of
Judgments § 13 comment (f) (1982).
3 From January 1983 to June 1984, the price case and the supply
case were both before federal courts in the Central District of Cali-
fornia. Tenneco never moved to consolidate them. In a hearing in
October 1984, Judge Waters asked the parties why the cases had
never been consolidated and a Tenneco attorney replied, “the parties
both seemed to think that that was the way to proceed, the supply
issues being tried here and the price issues being tried in the other
case.” E.R. at 1869.
4 Because of our resolution of this issue, we need not reach Kern’s
argument that the price case and the supply case did not involve the
same cause of action.
10a
crued by June 1978, when the breach of contract oc-
curred, and that the fraud claim accrued by February
1979, when Kern admittedly was aware of the fraud.
Thus, as Tenneco sees it, both claims are barred by
limitations.
The district court rejected those accrual dates and
found that Kern’s contract claim did not accrue until
January 1979. We choose a different course. We con-
clude that under Federal Rule of Civil Procedure 15 the
fraud and contract claims relate back to Kern’s regula-
tory complaint filed in July 1981, and are therefore not
barred by the statute of limitations.
Rule 15(c) states that “[w]henever the claim or de-
fense asserted in the amended pleading arose out of the
conduct, transaction, or occurrence set forth or attempted
to be set forth in the original pleading, the amendment
relates back to the date of the original pleading.” Rule
15 allows relation back even when the original claim is
itself time barred. Santana v. Holiday Inns, Inc., 686
F.2d 736, 739 (9th Cir. 1982).
Tenneco argues that the initial claim must give the
defendant “fair warning that he might later be accused
of some other offense than that raised in the first plead-
ing.” Tenneco is incorrect. Under Rule 15, the only
question is whether the later claims arise out of the con-
duct, transaction, or occurrence brought to the defend-
ant’s attention by the initial claim. When this is so later-
filed claims may relate back, even if they rest on a dif-
ferent legal theory than that of the first claim. See San-
tana, 686 F.2d at 739; Clipper Express v. Rocky Moun-
tain Motor Tariff Bureau, 690 F.2d 1240, 1259-60 n.29
(9th Cir. 1982), cert. denied, 459 U.S. 1227 (1983);
3 J. Moore, Moore’s Federal Practice { 15.15[3], at 15-
151 (2d ed. 1987).
The regulatory, contract, and fraud claims did arise
out of the same factual situation. In its initial complaint,
lla
Kern alleged that Tenneco had a obligation under DOE
regulations to sell Kern all of its Yowlumne oil, and that
beginning in June 1978 Tenneco breached that obligation.
The complaint thus put Tenneco on notice that Kern be-
lieved it had a right to all of the Yowlumne oil. Kern’s
later claims only added other legal theories to support its
asserted right. Thus, Kern’s initial claim rests on the
same conduct that supports Kern’s contract and fraud
claims.
3. Waiver by Kern’s Course of Performance
Tenneco argues that Kern’s course of performance un-
der the May 1977 and July 1978 contracts dooms its
claims. First, Tenneco argues that Kern’s course of per-
formance is inconsistent with the claim that Tenneco
breached the May 1977 contract. Second, Tenneco argues
that Kern waived its contractual rights by not notifying
Tenneco of the alleged breach.
Our standard of review in matters of this kind is not
simple. Our position is as follows: “When the district
court’s decision is based on an analysis of the contractual
language and an application of the principles of contract
interpretation, that decision is a matter of law and re-
viewable de novo. When the inquiry focuses on extrinsic
evidence of related facts, however, the trial court’s con-
clusions will not be reversed unless they are clearly er-
roneous.” Miller v. Safeco Title Ins. Co., 758 F.2d 364,
367 (9th Cir. 1985). The question of waiver of a con-
tractual right is also a question of fact and subject to
the clearly erroneous standard. CBS, Inc. v. Merrick,
716 F.2d 1292, 1295 (9th Cir. 1983).
The district court found that from April 1979 to No-
vember 1980, Kern experienced a shortage of crude oil
because Tenneco was not performing its obligations under
the May 1977 contract. While it is undisputed that Ten-
neco delivered to Kern title to all of the Yowlumne oil,
Kern received title, after July 1978, to some of the oil
12a
solely for transportation purposes,® pursuant to a con-
tract Tenneco fraudulently induced Kern to sign.* There-
fore, when Kern experienced a shortage of oil, its sales
of oil back to Tenneco under the terms of the transporta-
tion agreement neither evidenced satisfaction of Ten-
neco’s contractual obligations nor were they a waiver of
Kern’s rights under the May 1977 contract. Moreover,
a party’s continued performance subsequent to defective
performance by the other party does not waive the per-
forming party’s contractual rights as long as he complies
with notice requirements. See Eastern Air Lines, Inc. v.
McDonnell Douglas Corp., 532 F.2d 957 (5th Cir. 1976).
Tenneco argues, however, that Kern did not comply
with notice requirements, and that §§ 2.208 and 2.607 of
the Tex. Bus. & Com. Code (Vernon 1968) bar Kern
from recovering under the contract.? The district court
5 Tenneco disputes the district court’s finding that the July 1978
contract was a transportation agreement. We apply the clearly
erroneous standard, because the district court looked to the parties’
intent in agreeing to the contract. The finding was far from clearly
erroneous.
6 Tenneco argues that because Kern argued in its initial complaint
before the Department of Energy that Tenneco coerced Kern into
signing and performing under the July 1978 contract, Kern cannot
now argue that it was defrauded into signing and performing under
the contract. Tenneco does not attack the factual findings of the
district court that “‘Tenneco assured Kern that Tenneco would not
leave Kern without a sufficient refinery supply”; that “Tenneco’s
objective was eventually to take all of the Yowlumne production for
itself, but it concealed that intent from Kern”; and that ‘“Tenneco
induced Kern to enter into the July 1978 agreement by falsely repre-
senting to Kern that Tenneco would continue supplying Kern with
sufficient Yowlumne crude to meet Kern’s refinery needs.” E.R. at
266-67. These findings are not clearly erroneous, and support Kern’s
fraud claim. Tenneco cites no suport for the proposition that
Kern’s having argued a different basis for relief before a different
court in a different action should defeat its claim here.
7 Section 2.208 states:
(a) Where the contract for sale involves repeated occasions for
performance by either party with knowledge of the nature of
13a
found that “Kern protested Tenneco’s continuing breach
of supply obligations at the inception and during the
entire lifespan of the February 1979 agreement.” E.R.
at 269.
Section 2.607’s notice requirement should not be applied
stringently. ‘‘As is noted in the draftsmen’s comments,
‘the rule of requiring notification is designed to defeat
commercial bad faith, not to deprive a good faith con-
sumer of his remedy.’ ... [N]otice under section 2.607
need not be a specific claim for damages or an assertion
of legal rights.” Eastern Air Lines, 5382 F.2d at 976;
see Reynolds Metals Co. v. Westinghouse Elec. Corp., 758
F.2d 1073, 1078 (5th Cir. 1985) (§ 2.607’s notice re-
quirements “are not stringent and are liberally con-
strued by the Texas courts”); Vintage Homes, Inc. v.
Coldiron, 585 S8.W.2d 886, 889 (Tex. Civ. App. 1979) .8
the performance and opportunity for objection to it by the
other, any course of performance accepted or acquiesced in
without objection shall be relevant to determine the meaning
of the agreement.
(c) Subject to the provisions of the next section on modifica-
tion and waiver, such course of performance shall be relevant
to show a waiver or modification of any term inconsistent with
such course of performance.
Section 2.607(c) states “[w]here a tender has been accepted (1) the
buyer must within a reasonable time after he discovers or should
have discovered any breach notify the seller of breach or be barred
from any remedy... .”
Tenneco bases its arguments primarily on § 2.607. We therefore
do likewise.
8 In addition, we note that the notice provisions of the U.C.C. were
not designed for a heavily regulated, monopolistic relationship of
the type that existed between Kern and Tenneco. Under the DOE
regulations, the parties found themselves in a relationship that
neither could easily leave. They signed and performed under the
February 1979 contract, for example, at the same time that they
were disputing claims against one another. We agree with the Fifth
Circuit that even when two parties are effectively “married,” “the
l4a
The good faith of the buyer is the “governing criterion”
under the section. Eastern Air Lines, 5382 F.2d at 977.
We hold that Kern gave Tenneco good faith notice of
its contractual breach.® First, Kern raised the subject of
Tenneco’s contractual obligation before a January 1979
meeting with Tenneco. Second, Kern gave Tenneco ample
notice of Tenneco’s breach of its regulatory obligations.
The regulatory breach was very closely related to the
contractual breach. The regulations only applied because
Tenneco had contracted to sell oil to Kern. Therefore,
the underlying purposes of the section were accomplished:
Tenneco knew that Kern was dissatisfied with its tender
of goods, and the two parties had opportunity to negotiate
their differences. See Eastern Air Lines, 582 F.2d at
976; T.J. Stevenson & Co. v. 81,193 Bags of Flour,
629 F.2d 338, 361 (5th Cir. 1980).
C. Damages Erroneously Determined
1. 90-day Notice Period As a Limitation of Damages
The May 1977 contract allowed either party to ter-
minate the contract without cause after a 90-day notice
period. Tenneco argues that when a contract allows ter-
mination by either party without cause, damages for a
material breach are limited to those that would accrue
during the damage period.
Tenneco states this proposition too broadly. It applies
when one party has ceased all performance under a con-
tract. Under these circumstances the notice period will
determine the proper amount of future damages. See,
e.g., Cottman v. State Dep’t of Natural Resources, 51
buyer must decide whether the benefits of claiming a breach of
contract outweigh the need for a close rapport with the seller.”
Eastern Air Lines, 532 F.2d at 979 n.62. But we should not expect
a married party to complain as loudly as one who is free to play
the field.
® We therefore find it unnecessary to reach Kern’s argument that
Tenneco waived its notice argument by not raising it below.
15a
Md. App. 380, 443 A.2d 638 (Md. Ct. Spec. App. 1982) ;
Student Transit Corp. v. Board of Educ., 76 Ill. App. 3d
366, 395 N.E.2d 69 (1979). But the damages due to a
continuing partial breach are not limited to the contract’s
notice period. Such a breach is not the equivalent of a
cessation of all performance.
2. Kern’s Duty to Mitigate Damages
Tenneco sold some of the Yowlumne oil (referred to as
Section 33/34 oil) to third parties at uncontrolled prices.
Kern had the right to purchase this oil at controlled
prices, which were much lower than uncontrolled prices.
Tenneco argues that if Kern had asserted its right to
purchase the Section 33/34 oil at controlled prices, Ten-
neco would have immediately terminated the May 1977
contract, thereby greatly reducing its damages. Despite
its resemblance to the refrain, “You made me love you,
I didn’t want to do it,” Tenneco argues that the district
court erred in refusing to hear its offer of proof as to
this point.
“Trial court rulings on the admissibility of evidence
are reviewed for abuse of discretion. A reviewing court
will not reverse for an abuse of discretion unless it has
a definite and firm conviction that the court below com-
mitted an error.” Maddox v. City of Los Angeles, 792
F.2d 1408, 1412 (9th Cir. 1986) (citation omitted).
The district court did not abuse its discretion. Kern
produced evidence that Tenneco concealed Kern’s right to
purchase the Section 33/34 oil. As Kern points out, be-
cause it did not know it had the right to purchase the oil,
it could not have protested Tenneco’s selling the oil to
others. It was Tenneco, not Kern, who caused Kern not,
to purchase Section 33/34 oil. Therefore, it was not an
abuse of discretion for the district court to conclude that
Tenneco’s offer of proof was irrelevant.
l6a
3. Evidentiary Support for Damages
This court “will not disturb an award of damages on
appeal unless it is clearly unsupported by the evidence.”
Chalmers v. City of Los Angeles, 762 F.2d 753, 760 (9th
Cir. 1985). Tenneco makes two contentions that the evi-
dence does not support the award of damages. First, it
argues that the Energy Department’s post-trial proceed-
ing against Kern demonstrates that some of the evidence
Kern relied on in computing its damages was incorrect.
Second, it argues that Kern’s damage claim was specula-
tive."°
Tenneco, relying on the linkage between the regulatory
and this proceeding, says that it “discovered documents
which demonstrated that Kern had systematically de-
frauded the Department of Energy by engaging in a
series of illegal transactions which substantially reduced
Kern’s obligation under the DOE regulations to purchase
‘entitlements’ on price-controlled crude oil it refined.”
Tenneco argues that because the district court did not
allow it to reveal these documents to the DOE until after
the trial, the court based its award of damages on in-
correct assumptions as to Kern’s rights to purchase en-
titlements. The short answer to this argument is that
the district court allowed Tenneco to produce at trial the
evidence it later submitted to the DOE. Kern argued at
trial that even if the Department of Energy held that
Kern had acted unlawfully it would not revoke Kern’s
unused exception relief eligibility, which excused Kern
from having to purchase entitlements for the Yowlumne
oil. The district court therefore had this dispute directly
before it. We cannot say that its resolution of the dis-
pute was unsupported by the evidence.
10 In addition, Tenneco captions one of its headings “The Court
Violated Tenneco’s First Amendment Rights By Preventing It From
Petitioning The Department Of Energy.” Appellant’s Brief at 38.
Tenneco never discusses this rather eye-opening contention.
rT
Pa ey?
oa
17a
Tenneco points to Kern’s statement of objections to the
DOE Proposed Remedial Order that resulted from Ten-
neco’s disclosure of documents to the DOE, and argues
that Kern’s statement directly contradicts the district
court’s findings underlying its damage award. In par-
ticular, Tenneco argues that although Kern argued to
the district court, and the district court found, that Kern
would have refined, not sold, the Yowlumne oil it should
have received from Tenneco, E.R. at 271, Kern is now
arguing before the DOE that Kern would not have proc-
essed the oil, but would have sold it. The district court
heard a great deal of evidence on how Kern would have
disposed of the oil it did not receive. It concluded that
“Thjad the Yowlumne crude been made available to Kern,
sound business practice dictates that it would have been
processed by Kern and not sold.” E.R. at 256. That
Kern is now arguing a different theory to a different
tribunal certainly weakens its new position, but it does
not make the district court’s earlier conclusion clearly
unsupported by the evidence.
Tenneco argues that because Kern’s damage theories
changed several times during trial, its final damage claim
must have been speculative. It points to nothing else in
the record to support this conclusion. While inconstancy
of theories may suggest the weakness of each, a damage
award is not speculative merely because of such
inconstancy.
4. Prejudgment Interest Not Allowable
The district court awarded Kern equitable prejudgment
interest at the rate of ten percent. Tenneco argues that
Texas law precludes an award of equitable prejudgment
interest when a statute sets the rate. It then points to
Tex. Civ. Stat. Ann. art. 5069-1.03 (Vernon 1987), which
provides that prejudgment interest on “accounts and con-
tracts ascertaining the sum payable” shall be six percent.
18a
Texas courts disagree over whether art. 5069-1.03 pre-
vents courts from awarding equitable prejudgment inter-
est at a higher rate than six percent on “contracts ascer-
taining the sum payable.” Some courts have held that it
does. See, e.g., Baker Marine Corp. v. Weatherby Eng’g
Co., 710 S.W.2d 690, 695 (Tex. Ct. App. 1986) ; Missouri-
Kansas-Texas RR. v. Fiberglass Insulators, 707 S.W.2d
943, 945 (Tex. Ct. App. 1986). The district court held
that Texas law allows courts to set equitable prejudgment
interest rates even in cases to which art. 5069-1.03
applies. We agree.”
Like the district court, we rely on Crown Central
Petroleum Corp. v. National Union Fire Ins. Co., 768
F.2d 632 (5th Cir. 1985). In Crown Central, the Fifth
Circuit canvassed Texas law and concluded that “the
availability of statutory prejudgment interest in no way
foreclose[s] an award of equitable prejudgment interest.”
Id. at 637; see Phillips Petroleum Co. v. Stahl Petroleum
Co., 569 S.W.2d 480, 485 (Tex. 1978) .”
Cavnar v. Quality Control Parking, Inc., 696 S.W.2d
549, 554 (Tex. 1985), instructs courts awarding pre-
11 We note that several Texas courts have avoided this debate
by narrowly construing the scope of the phrase “contracts ascertain-
ing the sum payable.” See, e.g., McCann v. Brown, 725 S.W.2d 822,
825 (Tex. Ct. App. 1987); Perry Roofing Co. v. Olcott, 722 S.W.2d
538, 544 (Tex. Ct. App. 1986), aff’d, 31 Tex. S. Ct. J. 213, Feb. 13,
1988 (Tex. Feb. 10, 1988). Our resolution of this issue makes it
unnecessary for us to determine whether the contract in this case is
one “ascertaining the sum payable.”
12JIn Perry Roofing Co. v. Olcott, 31 Tex. S. Ct. J., Feb. 13, 1988
(Tex. Feb. 19, 1988), the Texas Supreme Court held that courts
could award prejudgment interest at the equitable, ten-percent rate
in cases that involve contracts not ascertaining the sum payable—
that is, contracts to which art. 5069-1.03 could not apply. The Court
did not address whether courts had discretion to award equitable
interest in cases inolving contracts that do ascertain a sum payable.
We therefore continue to be guided by Crown Central and Phillips
Petroleum.
Pe
19a
judgment equitable interest to look at Tex. Civ. Stat.
Ann. art. 5069-1.05 (Vernon 1987) to determine the in-
terest rate.* Thus, the district court correctly awarded
ten percent interest pursuant to Cavnar and art. 5069-
1.05.4
5. Rule 11 Sanctions Not Proper
The district court awarded Rule 11 sanctions to Kern
for “attorneys’ fees and costs incurred in resisting de-
fendant’s post-trial motions heard on August 4, 1986.”
E.R. at 196. Tenneco made three motions on August 4:
(1) to dismiss Kern’s regulatory claim on the ground
that the Emergency Petroleum Allocation Act of 1973
(EPAA) is unconstitutional; (2) to dismiss Kern’s
claims on the res judicata grounds discussed in III. B. 1
above; and (3) to unseal the trial transcript and ex-
hibits so that Tenneco could release documents about pos-
sible Kern wrongdoing to the Department of Energy.
Tenneco now argues that the district court erred in
awarding sanctions to Kern for these motions.
The underlying facts the district court relied upon in
making its determination are not in dispute. We there-
fore review de novo the district court’s legal conclusions
about the applicability of Rule 11. Zaldivar v. City of
Los Angeles, 780 F.2d 823, 828 (9th Cir. 1986).
13 Cavnar is a tort case, but its reasoning as to interest rates
applies to all equitable interest cases. See Crown Central, 768 F.2d
at 638; McCann, 725 S.W.2d at 825-26.
14 Tenneco argues that any legislative attempt to impose a higher
interest rate on parties to a contract after the parties have entered
the contract would be unconstitutional under the Supreme Court’s
decision in Allied Structural Steel Co. v. Spannaus, 438 U.S. 234
(1978). It argues further that this court should hold that the Texas
Supreme Court is similarly prevented from imposing new interest
rates for contract damages after the parties agreed to the contract.
Tenneco does not dispute Kern’s contention that Tenneco did not
raise this issue below. We therefore decline to review it. Bolker v.
Commissioner, 760 F.2d 1039, 1042 (9th Cir. 1985).
20a
The EPAA, under which the regulations in question
in Kern’s regulatory claim were promulgated, includes
a legislative veto provision. In INS v. Chadha, 462 U.S.
919 (1983), the Supreme Court declared the legislative
veto unconstitutional. The Temporary Emergency Court
of Appeals (TECA) has held that the EPAA is constitu-
tional on two separate grounds: (1) the legislative veto
provision is severable from the rest of the act; and (2)
Chadha does not apply retroactively to the act. See, e.g.,
United States v. Exxon Corp., 773 F.2d 1240 (T.E.C.A.
1985), cert. denied, 474 U.S. 1105 (1986).
In its August 1986 motion, Tenneco rejected TECA’s
position and argued that the EPAA was unconstitutional
because the legislative veto could not be severed from the
rest of the statute. It argued that, although the TECA
had not changed its position or been overruled on the
question of severability, the question was open because
the Supreme Court had just granted certiorari in Alaska
Airlines, Inc. v. Brock, 106 8. Ct. 1259 (1986). We need
not reach the question whether the grant. of certiorari in
Alaska Airlines, a case that did not involve the EPAA,
would justify Tenneco’s petitioning the district court to
disregard the position of the TECA. Tenneco’s motion
did not discuss, or even mention, TECA’s alternative
holding that the EPAA could stand on retroactivity
grounds. This Tenneco should not have done. The ‘trial
court’s award of Rule 11 sanctions for this motion was
justified because the motion, by ignoring a portion of
existing law, was not “warranted by existing law or a
good faith argument for the extension, modification, or
reversal of existing law.” Fed. R. Civ. P. 11.
Tenneco’s res judicata arguments before the district
court are identical to its res judicata arguments before
this court, and have been discussed. The arguments do
not support Tenneco’s position. Rule 11 sanctions were
justified because Tenneco had acquiesced to the claim
splitting for nearly four years before it made the motion.
”
Uri’ a
NM AAAI C8 Re chi
Pe ner eee Re ee. Pia ets oe ecw ene
21a
The trial court granted Tenneco’s request to unseal
the trial transcript. It therefore seems unlikely, to say
the least, that the court also awarded sanctions against
Tenneco for making the motion. Unfortunately, however,
the court’s order refers only to the motions of August 4,
and does not specify which motions it covers. E.R. at
196. Nevertheless, after the court awarded Kern sanc-
tions, Kern did not ask for attorneys’ fees for time spent
defending this motion. Because Tenneco did not have to
pay sanctions in the form of fees for making this motion,
the district court’s imprecision in specifying the motions
for which sanctions were appropriate becomes moot.
AFFIRMED.
22a
APPENDIX B
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
Nos. 86-6674, 87-5743
KERN OIL & REFINING Co.,
Plaintiff-Appellee,
Vv.
TENNECO OIL COMPANY,
Defendant-A ppellant.
[Filed May 19, 1988]
Before: SNEED and PREGERSON, Circuit Judges, and
INGRAM", District Judge.
ORDER
The panel as constituted in the above case has voted
to deny the petition for rehearing and to reject the sug-
gestion for rehearing en banc.
The full court has been advised of the suggestion for
en bane rehearing, and no judge of the court has re-
quested a vote on the suggestion for rehearing en banc.
Fed. R. App. P. 35(b).
The petition for rehearing is denied, and the sugges-
tion for a rehearing en banc is rejected.
* Honorable William A. Ingram, United States District Judge for
the Northern District of California, sitting by designation.
——————eaeoS
23a
APPENDIX C
SUPREME COURT OF THE UNITED STATES
No. A88-74
TENNECO OIL Co.,
Applicant
Vv.
KERN OIL and REFINING Co.
ORDER
UPON CONSIDERATION of the application of coun-
sel for the applicant,
IT IS ORDERED that the time for filing a petition
for a writ of certiorari in the above-entitled case, be
and the same is hereby, extended to and including Sep-
tember 16, 1988.
/s/ Sandra D. O’Connor
Associate Justice of the
Supreme Court of the
United States
Dated this 3rd day of August, 1988.
24a
APPENDIX D
UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
Nos. CV 81-3253 LEW (Gx)
CV 82-6875 LEW (Gx)
KERN OIL & REFINING Co.,
Plaintiff,
Vv.
TENNECO OIL COMPANY,
Defendant,
TENNECO OIL COMPANY,
Counterclaimant,
V.
KERN OIL & REFINING Co.,
Counterdefendant.
[Filed Sept. 6, 1985]
ORDER RE TENNECO’S MOTION
FOR DISCLOSURE OF DOCUMENTS
On May 10, 1985, this Court heard Tenneco’s motion to
disclose to the Department of Energy (“DOE”) certain
documents produced by Kern during discovery. Dissemi-
nation of these documents was limited by a broad stipu-
lated protective order issued February 1, 1984. By its
25a
motion, Tenneco sought to remove these documents from
the scope of that order.
Following oral argument, this Court issued an order
requiring Tenneco to specify each document which it de-
sired to disclose. Kern was then to “provide a specific
showing of good cause pursuant to Rule 26(c) of the
Federal Rules of Civil Procedure as to why those docu-
ments identified by Tenneco should be protected from
disclosure.” Tenneco was given an opportunity to oppose
Kern’s showing, and the matter was to stand submitted
as of that time.
On June 3, 1985, Tenneco filed under seal copies of
those documents sought to be disclosed. On June 14,
Kern filed a document entitled “Supplemental Memo-
randum of Kern Oil & Refining Co. in Opposition to
Tenneco Oil Company’s Motion for Disclosure of Docu-
ments.” Contrary to this Court’s order, Kern elected not
to make its showing of good cause. The reason for this
was stated by Kern as follows:
Kern does not here address the confidential na-
ture of the documents identified in Tenneco’s sup-
plementa!l memorandum because the risk of prejudi-
cial disclosure of that information to Kern’s com-
petitors, suppliers and customers has been reduced
by Tenneco’s change of strategy in now seeking to
disclose those documents only to the government.
Kern concedes that it could probably prevail upon
the DOE not to disclose the documents to the public.
By so conceding, however, Kern does not abandon its
previous position that the documents contain con-
fidential commercial information.
Supplemental Memorandum of Kern Oil & Refining Co.
in Opposition to Tenneco Oil Company’s Motion for Dis-
closure of Documents (hereinafter “Kern’s Supplemen-
tal Memo’), p. 1 (Emphasis in original). Although no
supporting authority is cited, Kern apparently has con-
26a
cluded that Rule 26(c) provides no grounds for protect-
ing confidential commercial information if, in fact, that
information will not reach the commercial public. The
Court expresses no view on this conclusion.
Having occupied the position that a Rule 26(c) show-
ing was of no assistance to it, Kern returned to the sub-
stance of the underlying motion. It argued that Tenne-
co’s “change of strategy” brought to bear a line of deci-
sions holding that “a party which has received documents
in the course of discovery in a lawsuit with the under-
standing that they were to be used solely for litigation
in that action cannot voluntarily disclose those docu-
ments to an agency of the Government for purposes of
the agency’s investigation of the party which produced
the discovery.” Kern’s Supplemental Memorandum, p. 2.
The leading case in this line is GAF Corp. v. Eastman
Kodak Co., 415 F. Supp. 129 (S.D.N.Y. 1976). On June
19, Tenneco filed its own Supplemental Memorandum not-
ing Kern’s failure to present any showing of good cause
but addressing the new arguments raised.
Kern’s most recent filing is somewhat puzzling. This
Court has always been under the impression that Tenneco
sought to disclose the documents in question only to the
DOE. Tenneco states that this is, in fact, the case. Kern
cites nothing to support its claim that Tenneco somewhere
changed its strategy. This Court, however, sees no reason
to penalize Kern for its prior confusion and will thus
treat its Supplemental Memorandum as a motion for re-
consideration.
The Court has reviewed the cases cited by Kern, in
particular the GAF opinion. Given the particular facts
of the instant case, the relevant holding of this line of
cases states that a party shall be bound by the terms of
an agreement not to disclose documents produced in the
course of litigation. The Court fully agrees with this.
Here, the parties have agreed by stipulation that con-
fidential commercial information produced in discovery
SICA i Wy UN revel tal halide | heh,
27a
shall not be disclosed. Tenneco is bound by this agree-
ment.
Kern shall be given one final opportunity within seven
days from the filing of this order, to make its showing
that the disputed documents do contain such information.
It is not relevant to this showing that the document will
never reach the public. If the information contained in
the documents is still commercially confidential, Tenneco
shall be barred from disclosing it. Tenneco shall have
ten days from the date of Kern’s submission to file its
opposition, if any. The matter will stand submitted as
of that time.
IT IS SO ORDERED.
DATED: 6 Sep. 85
/s/ Laughlin E. Waters
LAUGHLIN E. WATERS
United States District Judge
28a
APPENDIX E
UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
Nos. CV 81-3253 LEW (Gx)
CV 82-6875 LEW (Gx)
KERN OIL & REFINING Co.,
“Plaintiff,
v.
TENNECO OIL COMPANY,
Defendant,
TENNECO OIL COMPANY,
Counterclaimant,
Vv.
KERN OIL & REFINING Co.,
Counterdefendant.
[Filed Oct. 11, 1985]
ORDER RE TENNECO’S MOTION
FOR DISCLOSURE OF DOCUMENTS
On September 6, 1985, this Court issued an order di-
recting Kern Oil & Refining Company and Tenneco Oil
Company to file briefs addressing the -issue of whether
the documents Tenneco seeks to turn over to the Depart-
ment of Energy contain confidential information. The
ee
eT eas ee
29a
Court since then has received and read Kern’s Second
and Third Supplemental Memoranda and Tenneco’s re-
plies thereto. Having considered those papers and all
exhibits thereto in addition to all prior briefing on this
motion, this Court hereby finds:
That the protective order entered into by the parties
and signed by this Court contemplated that all documents
discovered in the course of this litigation be presumed
confidential and be used only for the purposes of this
litigation ;
That the documents which Tenneco seeks to disclose
are documents containing the type of confidential com-
mercial information which the protective order sought to
keep private;
That Tenneco’s expressed reason for disclosing said
documents is to present them to the Department of En-
ergy for the purpose of causing that agency to review an
earlier action and order thereon which order, Tenneco
asserts, was the result of fraud perpetrated on DOE by
Kern;
That Tenneco was not a party to the proceedings in-
volving Kern before the DOE; and
That DOE is not a party to the suit now in issue
before this Court;
While Kern has failed to demonstrate good cause why
the disclosure of Exhibits B, D, G, E (apart from those
documents listed in Exhibit B to Tenneco’s Second Sup-
plemental Memorandum) and F (as revised) should not
be permitted, the procedure now suggested by Tenneco
can only result in further delay and may further com-
plicate and extend the present proceedings with no as-
surance that positive and constructive results will be
achieved. The questions raised are better resolved within
the scope of the present litigation and parties.
30a
Therefore, IT IS HEREBY ORDERED that Tenneco’s
motion for disclosure of documents is DENIED.
IT IS SO ORDERED.
DATED: October 11, 1985
/s/ Laughlin E. Waters
LAUGHLIN E. WATERS
United States District Judge
sla
APPENDIX F
UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
HONORABLE LAUGHLIN E. WATERS, Judge Presiding
Dei molt See
No. CV 81-3253-LEW (Kx)
No. CV 82-6875-LEW (Kx)
: ; KERN OIL & REFINING Co.,
Plaintiff,
vs.
TENNECO OIL COMPANY,
Defendant.
TENNECO OIL COMPANY,
Counter-Claimant,
VS.
KERN OIL & REFINING Co.,
Counter-Defendant.
REPORTER’S PARTIAL TRANSCRIPT
OF PROCEEDINGS
Los Angeles, California
Wednesday, December 18, 1985
DONNA S. BaIrD, CSR 3591
Official Court Reporter
430 United States Courthouse
312 North Spring Street
Los Angeles, California 90012
(213) 621-2400
Itt nreelll
32a
Appearances:
For the Plaintiff and Counter-Defendant Kern Oil &
Refining Company:
O’MELVENY & MYERS
RICHARD E. SHERWOOD
SUZANNE F. DUFF
VERA P. PARDEE
400 South Hope Street
Los Angeles, California 90071-2899
(213) 669-6000
For the Defendant and Counter-Claimant Tenneco
Oil Company: :
BAKER & BOTTS
JOHN P. MATHIS-
KIRK K. VAN TINE
1701 Pennsylvania Avenue, N.W.
Washington, D.C. 20006
(202) 457-5500
and
GIBSON, DUNN & CRUTCHER |
JAMES R. MARTIN
333 South Grand Avenue
Los Angeles, California 90017
(213) 229-7000
and
ALFRED B. SMITH, JR.
P.O. Box 2511
Houston, Texas 77001
(713) 757-2131
[8B-3] Los Angeles, California;
Wednesday, December 18, 1985; 9:00 A.M.
* * * *
THE COURT: Please be seated.
PORE eh eee ene aE eT ye ~ om
33a
I’m going to make a few comments, and then I’ll give
you the essence of my ruling. These comments that I’m
going to make are not going to be definitive, nor are
they going to be complete in all particulars. So I put
that caveat in because on another occasion, I did make
some comments when I ruled from the bench, and the
briefs, then, came back saying that I hadn’t discussed
this, and I hadn’t discussed that. Therefore, whatever
arguments flowed from it. So I don’t want anybody te
get the impression that this short time that I’m going to
take will address every question that’s been raised.
The first comment is about the performance of coun-
sel in this case, and I applaud you both, both sides, I
guess, I should say here. It’s not often that we have
cases as vigorously and professionally and competently
advocated on both sides as we’ve had here, and I think
both sides at least are in agreement on the proposition
that everything that can be briefed has been briefed, and
thoroughly, and imaginatively, and creatively as well as
with a high degree of professionalism. From my own
part, I’m appreciative of that. By the same token, by
the time I finish my remarks, [8B-4] both sides won’t
necessarily be appreciative of what I say, but we do have
to come to a point of decision, and that’s the purpose of
this forum.
I commented at the outset of trial, that much of this
case would be determined upon the credibility of wit-
nesses, and I renew that observation. I do bear in mind,
and it’s understandable that the witnesses who have tes-
tified here, if they possess one thing that’s common, it’s
a bias on behalf of their respective positions, and that’s
understood and that’s acceptable. Over a period of time,
why, the shadings of the bias become somewhat more
marked, and I was impressed by that fact as I listened
to each side call the people they desired to have testify.
Some witnesses, I think, testified partly from a lack of
knowledge. Some of them testified given their respective
34a
position with as much body English as they could, and I
had trouble with the integrity and objectivity of some
witnesses more so than others.
I will comment back in regard to the performance of
the attorneys, again, that as has been pointed out here,
some points were addressed by one side and not addressed
by the other and vice versa. So we have the scene really
of a war being fought, but the combatants are on some-
what different battlefields, and I have to try to bring
this together and reach a decision on that which I think
is [8B-5] appropriate in light of all of the circumstances.
As to the matter of the statute of limitations, it is my
conclusion that the complairit was timely filed, that the
arguments advanced by Kern in that regard are the ar-
guments upon which I do rely. Now, there may be a dif-
ferent construction later on as this case proceeds, because
clearly whatever happens in this court is not going to be
the final step, but I think the complaint was timely filed.
As to the fundamental issues and what really happened
in this case, it seems to me that the parties here started
out in a companionable fashion and had entered into an
agreement prior to the May 1977 agreement and had
functioned effectively with each other for some period of
time.
Tenneco, of course, was the producer, and Kern in part
was the refiner, but, also a distributor of the oil that was
produced by Tenneco. The relationship continued and be-
came somewhat more intense during the oil glut that was
referred to here, because it created problems both for
Tenneco and Kern and raised the very real question as to
the possible shutdown of the Yowlumne Field due to
Kern’s apparently expressed problem of not being able to
absorb any more oil, again, in light of the glut situation.
The fortuitous event that took place, as I view it,
[8B-6] was the sudden availability of the Four Cor-
ee re Ke
eC a eee ee ee ee
85a
ners pipeline and the reversal of the flow of the crude
through that pipeline, which created the opportunity for
Tenneco to suddenly provide assistance to its refinery at
Chalmette. Now, Chalmette, of course, was in existence
probably for some period of time prior to the existence
of any agreement between these parties. Chalmette al-
ways had to be a prime concern for Tenneco, and it’s very
clear that this is an exceedingly complex and complicated
industry, and the exchanges and interchanges that take
place, between all levels of the industry and the various
companies, it’s fast-moving, and it’s detailed and ex-
tremely competitive.
Tenneco, as I view it, fastened upon this opportunity
to ultimately provide additional crude for the operation
of its refinery in Chalmette by taking advantage of the
opportunity presented to the Four Corners pipeline. It
was of necessity imposed upon Tenneco to work through
Kern on that because of Kern’s peculiar position in re-
gard to the Texaco pipeline, and it was really at this
point that the strain began to develop, and it was at this
point, of course, that the July 1978 agreement came into
place.
It is my view that the July 1978 agreement is not a
true buy-sell agreement, but it was an agreement that
was entered into by the parties by reason of the structure
of California law as enforced by the Public Utilities
[8B-7] Commission which compelled that.. It was, in my
view, nothing more or less than a transportation agree-
ment.
The July 1978 agreement was later superseded by the
February 1979 agreement. I do not believe that any sig-
nificant rights of crude to either party as a result of the
July 1978 agreement, nor do I believe that those rights,
whatever they may have been, were in any way affected
by the February 1979 agreement, which, as I understand
the evidence, was simply a transaction or an agreement
that simplified the bookkeeping between the parties.
36a
I listened to Mr. LeDoux and his testimony as one of
those individuals with which I have more trouble than
some others. I have even more trouble with some of the
testimony of Mr. Strader. Particularly do I have trouble
with the testimony as it came out saying that Kern knew,
Kern understood, these were our intentions, and we acted
in accordance with a gentleman’s agreement.
In an industry as big and as complicated as this, while
there was attorney output or input on this matter, ap-
parently this industry moved so rapidly that the attor-
neys are unable to keep up with what is actually taking
place in the field, and for that reason, the document
drafted in June, for example, was not signed until Oc-
tober, even though the parties have been acting under
the compulsion of that agreement.
(8B-8] I have to look at the agreements that were pre-
pared by Tenneco, and I do accept the argument that
Tenneco knows how to draft agreements. The agreement
of May 19, 1977—and I’m looking now at Exhibit A—
“Crude oil from the above leases will be balanced against
crude oil sold to Tenneco by Kern County Refinery up to
3,000 barrels a day.”
Now, that langauge is clear, and it’s unambiguous. The
balancing obligation was up to that 3,000-barrel limit.
There were other agreements that were prepared by
Tenneco with other parties where the language was
equally clear and equally unambiguous where it said that
the agreement was entered into, and it will be balanced
barrel for barrel, and that was consistent with Tenneco’s
desire to provide additional crude for its refinery at Chal-
mette. But I don’t believe that the May 1977 agreement
entered into between these parties contemplated that, nor
did it come within the contemplation of the Tenneco ex-
ecutives until after the Four Corners pipeline became
available to them.
_ ee |
ee Toe
— a ee ee ree ee ee
37a
In regard to Kern’s right to all crude from the Yow-
lumne Field, I think they’ve made a sufficient showing to
establish that they have that right, including the oil from
Sections 33 and 34.
Now, we’ve had some eloquent argument about how
certain accounting procedures have taken place in regard
[8B-9] particularly to make sure that those people who
have a royalty interest in a particular well are properly
compensated, but I think that’s really aside from the
point that oil from Sections 33 and 34 was comingled with
other oil in Tank Farm 4, and it’s my conclusion that
Kern received oil from Sections 33 and 34, and while it
seems to be kind of an interesting thread upon which to
hang the conclusion that certain supplier-purchaser rela-
tionships flowed from that on the basis of first use, I think
that is where this case goes.
So as I view it, Kern has made a sufficient showing,
carried its burden, to demonstrate that they did have an
agreement, that the agreement was breached by Tenneco,
and Tenneco breached it because of its perceived needs
for its tank farm in Chalmette, that Kern was entitled
to the protections of the supplier-purchaser provisions of
the appropriate regulations, and that there has been a
sufficient showing of damage to Kern so that the Court
must find judgment for Kern in regard to the liability
phase.
Now, there has been a substantial amount of argument
in regard to whether or not Kern was, in fact, damaged.
That’s something we’re going to have to address later on.
I reached no view on that at this time. I’m sure it will
be an equally complicated and sophisticated presentation
by both sides. I’m sure that both sides feel [8B-10] that
I’m failing to address a number of very important points
that you have raised, but I don’t see the relationship as
being really that much more complicated than I voiced
here, which I svppose will buttress you in your conclu-
sions that my approach is perhaps too simplistic.
38a
In any event, while oil companies do have agreements
and so on, I think they’re all essentially very vigorous
competitors with each other, and when the occasion arises,
why, it’s a kind of a no-quarter situation. I suspect that’s
what’s happened here.
~ * * *
J lh» Salas cst a hal aati
39a
APPENDIX G
UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
Nos. CV 81-3253 LEW (Kx)
CV 82-6875 LEW (Kx)
KERN OIL & REFINING Co.,
Plaintiff,
V.
TENNECO OIL COMPANY,
Defendant.
TENNECO OIL COMPANY,
Counterclaimant,
v.
KERN OIL & REFINING Co.,
Counterdefendant.
[Filed Aug. 28, 1986]
MEMORANDUM OF DECISION
These consolidated cases raise issues of breach of con-
tract and breach of regulatory obligations by Tenneco Oil
Company (“Tenneco”’) against Kern Oil & Refining Co.
(“Kern”) and damages flowing therefrom. The liability
phase has been previously tried and resulted in a finding
adverse to Tenneco. Specifically, the Court found that
Tenneco had breached the regulatory obligations as
40a
pleaded in count one and had breached the contract as
pleaded in counts two through seven. The Court will now
address the remaining issues concerning damages and
whether attorneys’ fees and related costs should be
awarded to Kern.
In urging its view as to the proper quantum of dam-
ages, Kern changed position several times during the
progress of the litigation, on each occasion asserting a
greater amount due. The amounts finally settled upon
by Kern, during trial of the damage phase, were not less
than $16,761,639.00 as lost profits plus prejudgment in-
terest of $12,836,980.00 on its breach of contract claim
or, alternatively, $15,180,303.00 as prejudgment interest
on its breach of regulatory obligation claim plus attor-
neys’ fees and related costs incurred in prosecuting its
claims for a total amount in excess of $30,000,000.00.
During the trial on the damage phase, Tenneco pleaded
surprise concerning the latest projections as to the
amount of damages advanced by Kern and insisted on an
interruption of the trial so that it could more fully con-
sider this latest contention and more effectively cross
examine the Kern witnesses. Tenneco’s request for delay
was grarited. Interestingly, when trial resumed, Tenneco
left this area of examination virtually untouched, thus
raising the inference that the requested delay was for
a purpose or purposes other than those expressed to the
Court.
While not addressing Kern’s last damage computation
directly, Tenneco raised several arguments which, if sus-
tained, would tend to reduce the total of damages claimed.
In so doing, Tenneco was in effect seeking to retry the
liability phase of the trial. These arguments included the
following assertions: that Kern did not have the capacity
to process all of the crude available from the Yowlumne
field and that, as a result, Kern did not experience a
shortage of crude; that Kern’s refinery was so designed
eee a eee ee he Pee ee ee eee ne rT
a oe
4la
so that it could not process the high gravity crude avail-
able from the Yowlumne field without massive and very
expensive redesign of Kern’s refinery; that Kern would
have sold excess Yowlumne crude rather than process it
if available; that Kern would have incurred entitlement
obligations on contract crude processed between April 1,
1979 to March 31, 1980; that Kern failed to make com-
mercially reasonable efforts to mitigate its damages; and
that damage to Kern was not reasonably foreseeable by
Tenneco.
Discussion
The points addressed in this memorandum do not pur-
port to be an exhaustive discussion of all of the issues
raised during the trial, but they will be discussed for the
purpose of indicating the bases of the Court’s decision.
‘Much of Tenneco’s case was based on a highly selective
approach of specific instances from which a general con-
clusion is urged. Upon analysis, however, and in light of
more persuasive countervailing evidence, this selective
evidence did not sustain the positions asserted by Ten-
neco. This had the effect of eroding the credibility of a
number of the Tenneco witnesses and weakening and/or
destroying the validity of their contentions. Such selec-
tive argumentation left the Court wondering, on occasion,
as to what the true facts were.
As a case in point, in its challenge to the capacity of
the Kern refinery to process Yowlumne crude at the rate
of 21,000 BPSD (barrels per stream day), Tenneco relied
heavily upon the figures showing reduced production dur-
ing the start-up period of the refinery and the period of
reduced production during a strike in 1980. Tenneco
thus concluded that Kern did not have capacity to process
the Yowlumne crude in amounts greater than 16,000
BPSD. Kern effectively rebutted this contention by more
credible witnesses and through more persuasive docu-
mentation. The Court concludes that the limit on the
42a
BPSD capacity was largely due to the failure of Tenneco
to supply contracted crude from the Yowlumne field. The
Court also finds that the Kern refinery had a capacity
of 21,000 BPSD.
Tenneco urges that due to the design of the Kern
refinery, it did not have the ability to process or to handle
the higher gravity crude from the Yowlumne field. Mr.
Tucker, testifying on behalf of Tenneco, attempted to
correlate Kern’s crude unit processing rate with API
crude gravity and produced a graph to demonstrate his
conclusion. The Court finds that the points on the graph
adapted by Mr. Tucker were not the most valid points,
that the line, therefore, was distorted and that the con-
clusion urged was misleading.
It is true, of course, that the Kern refinery was proc-
essing lower gravity crude, but this was due to the non-
availability of Yowlumne crude. Kern testified, and the
Court finds, contrary to the contentions of Tenneco, that
the modifications of the Kern refinery necessary to process
higher gravity crude were not significant in cost and
could be readily achieved without major modification of
the refinery. Had the Yowlumne crude been made avail-
able to Kern, sound business practice dictates that it
would have been processed by Kern and not sold, so that
higher quality products would have been produced in
Kern’s inventory.
As to the question of foreseeability on the part of
Tenneco of damage to Kern, even if relevant, the Court
finds that the damage was foreseeable. Tenneco operates
its own refinery at Chalmette, Louisiana and thus knows
of the importance of crude, both in volume and quality, to
a refinery. Indeed, it was Tenneco’s cesire to protect its
own interest in its refinery which resulted in the breach
of contract with Kern.
The oil industry is highly competitive and industrial
intelligence between competitors is vigorously pursued.
nnremieneneninennnee tim
43a
The manner in which Tenneco effected the diversion of
Yowlumne crude from Kern and its awareness that the
diversion would require “rather delicate handling” is
indicative of knowledge on the part of Tenneco. “It is
not necessary that the specific injury or amount of harm
be foreseen, but only that a reasonable person in [defend-
ant’s] position would foresee that in the usual course of
; “events, damages would follow from its breach.” Barnard
v. Compugraphic Corp., 667 P.2d 117, 120 (Wash. App.
1983) (emphasis in original).
:
7
As to the argument regarding entitlement obligations,
Kern has made a sufficient showing that its conduct was
not violative of federal regulations and that the Depart-
ment of Energy made an audit of entitlements compliance
from October 1980 through January 1981 and found
Kern to be in compliance.
The fact that retroactive exception was granted to
Kern by the Department of Energy for the period Octo-
ber 1979 to March 1980 does not invalidate or modify
Kern’s claim for damages. Such relief was granted after
due consideration by the Department of Energy, and
Kern is entitled to rely upon it. Tenneco cannot now
make a collateral attack on an order to which it was not
a party. It must take the order as it finds it. See Cal-
lanan Road Improvement Co. v. United States, 345 U.S.
507, 512 (1953). Tenneco conceded, under cross-
examination, that if Kern’s entitlement purchase obliga-
tions would not exceed the amount of its exception relief
eligibility, Kern’s damage claim would not be affected.
4
Damages
In light of the above, Kern is entitled to damages for
lost refinery profits in the amount of $16,761,639.00.
Attorneys’ Fees
Kern also seeks attorneys’ fees under the authority of
Section 38 of the Texas Civil Procedure & Remedies Code.
4
SS
44a
Failure to award attorneys’ fees in this case would un-
fairly disadvantage Kern to the betterment of Tenneco
which deliberately embarked on this program of contract
and regulatory breach. To hold otherwise would permit
Tenneco to profit from its own wrongdoing.
The Court finds that Kern has complied with the
requirements of the pertinent Texas statutes and that it
is entitled to attorneys’ fees plus related costs including
attorney’s fees and costs for post trial motions.
Interest
Interest is sought under the authority of Cavnar v.
Quality Control Parking, Inc., 696 S.W.2d 549 (Tex.
1985) for breach of contract. In Crown Central Petro-
leum Corp. v. National Union Fire Ins. Co., 768 F.2d 632
(5th Cir. 1985), the court stated “. . . that... Cavnar
. must be read to create a judicial scheme for the
award of prejudgment interest in all cases.” Id. at 637.
Under this authority, Kern is entitled to prejudgment
interest in the amount of $12,836,980.00 plus additional
interest computed at the rate of 10% to the date of this
decision plus post judgment interest at the rate of 10%
until judgment is paid, all interest to be compounded.
Kern also urges interest on the alternative basis in the
amount of $15,180,303.00 on the breach of regulation
claim. This interest is computed on the basis of the De-
partment of Energy’s use of the prime rate or by the
provisions of 28 U.S.C. 1961 (the federal post judg-
-ment interest statute). In the circumstances of this case
and in the appropriate exercise of discretion and consist-
ent with the determination made in Kern Oil & Refining
Co. v. Tenneco Oil Co., Case No. 81-0791-R, interest is
awarded to Kern on this alternative basis in the amount
of $15,180,303.00 plus such additional interest as may
accrue until date of payment of the award herein based
on T-bill investment rates in effect from time to time.
t
4
a
¥
a
é
i
4
45a
Conclusion
As earlier indicated, these comments are not intended
to be exhaustive of all issues raised by the parties hereto,
but are designed to summarize some of the bases for the
Court’s decision.
Counsel for Kern are directed to prepare findings of
fact and conclusions of law on all material issues in-
volved and are further directed to prepare a judgment in
accordance with this memorandum of decision.
DATED: 28 Aug. 86
/s/ Laughlin E. Waters
LAUGHLIN E. WATERS
Sr. District Judge
46a
APPENDIX H
UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
Case Nos. CV 81-3253 LEW (Kx)
CV 82-6875 LEW (Kx)
KERN OIL & REFINING Co.,
Plaintiff,
Ve
TENNECO OIL COMPANY,
Defendant.
TENNECO OIL COMPANY,
Counterclaimant,
v.
KERN OIL & REFINING Co.,
Counterdefendant.
[Filed Sept. 25, 1986]
ORDER RE TENNECO OIL COMPANY’S
MOTION FOR DISCLOSURE OF
TRIAL TRANSCRIPTS AND EXHIBITS
On October 11, 1985, this Court issued an order deny-
ing Tenneco’s motion for disclosure of documents obtained
through discovery. On Kern’s motion, and without objec-
tion from Tenneco, the Court during trial of the damages
phase of this action extended the protective order filed on
:
3
>
4
:
*
4
3
4
&
ey
3
4
;
:
ty
47a
January 31, 1984 to cover the trial transcript and trial
exhibits. Thereafter, the documents which Tenneco
sought to have disclosed prior to trial were admitted into
evidence. Some six months after the conclusion of trial,
but prior to entry of final judgment, Tenneco moved to
vacate the order of this Court sealing the trial record.
At the hearing on the motion, held on August 4, 1986,
the Court took the matter under submission. Having con-
sidered the briefs filed by the parties as well as the oral
argument of counsel, the Court for the reasons set forth
below now grants Tenneco’s motion.
Tenneco argues that it has both a First Amendment
and a common law right of access to the documents at
issue. Although three Circuits have found that the First
Amendment does confer a right of access to the records
of a civil case, Brown & Williamson Tobacco Corp. v.
FTC, 710 F.2d 1165, 1177-1179 (6th Cir. 1983); Pub-
licker Industries, Inc. v. Cohen, 733 F.2d 1059, 1067-1070
(3rd Cir. 1984); In Re Continental Illinois Securities
Litigation, 732 F.2d 1302, 1308-1309 (7th Cir. 1984) ;
but see In Re Reporters Committee for Freedom of the
Press, 773 F.2d 1825, 1330-1341 (D.C.Cir. 1984) (First
Amendment right of access, if any, does not accrue until
after entry of final judgment), this issue has not been
addressed by either the Ninth Circuit or the Supreme
Court. The common law right of access claimed by Ten-
neco is however universally recognized. See Nixon v.
Warner Communications, Inc., 435 U.S. 589, 597-600,
98 S.Ct. 1311-1313 (1978) and Publicker Industries, Inc.
v. Cohen, 733 F.2d 1059, 1066 (3rd Cir. 1984).
The traditional common law. right of access cannot be
given straightforward application in this case because it
is being asserted by a party to the litigation which al-
ready has access to the documents at issue. What Ten-
neco seeks by its motion is not access te the documents,
but rather vacation of an order which prohibits dissemi-
EE <<<
48a
nation of the documents. Tenneco has failed to cite a case
which establishes a common law right to disseminate
documents which are the subject of a protective order.
Although the Court finds that Tenneco’s common law
right of access has not been violated, it is not necessary
to reach the constitutional claims raised by Tenneco be-
cause Tenneco is entitled to relief on other non-constitu-
tional grounds. Given the present posture of this case,
the Court now finds that there is no goou reason to con-
tinue to extend the protective order to cover the trial
transcripts and trial exhibits. Because this matter has
now been tried, presentation by Tenneco of the documents
at issue to the DOE will not delay proceedings before
this Court. Moreover, when ruling on Tenneco’s original
motion for disclosure, this Court found that Kern had
failed to demonstrate good cause as to why the docu-
ments should remain under seal. The Court now reaffirms
this finding. The documents at issue relate to certain
spot transactions entered into by Kern with suppliers
and exchange partners more than five years ago. Kern’s
argument that this information can be used to Kern’s
detriment by its competitors is unpersuasive, especially
in light of Kern’s recent concession that all other informa-
tion contained in the trial record is not confidential.
Kern’s Memorandum of Points and Authorities in Oppo-
sition to Tenneco’s Motion for Disclosure of Trial Tran-
scripts and Exhibits at p. 8; see In Re Reporters Com-
mittee for Freedom of the Press, 773 F.2d 1325, 1339
(D.C.Cir. 1985). There being no good cause for the main-
tenance of the protective orders, those orders are vacated
insofar as they pertain to trial exhibits received into evi-
dence and to the trial transcript. Tavoulares v. Wash-
ington Post Co., 737 F.2d 1170, 1172-1173 (D.C.Cir.
1984). However, in order to allow Kern an opportunity
to seek review of today’s ruling by the Ninth Circuit, this
order is not to become operative until October 3, 1986.
49a
Until that time, Tenneco remains bound by the previously
entered protective orders.
IT IS SO ORDERED.
Dated: September 25, 1986
/s/ Laughlin E. Waters
LAUGHLIN E. WATERS
Sr. United States District Judge
scieaabiiasogamanaiabiti one
50a
APPENDIX I
UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
Nos. 81-3253 LEW (Kx) &
82-6875 LEW (Kx)
KERN OIL & REFINING Co.,
Plaintiff,
y. I
TENNECO OIL COMPANY,
Defendant,
TENNECO OIL COMPANY,
Counter-Claimant,
Vv.
KERN OIL & REFINING Co.,
Counter-Defendant.
| Entered Nov. 5, 1986]
ORDER AND JUDGMENT
This action having come on regularly for trial com-
mencing December 3, 1985, the Honorable Laughlin E.
Waters, Judge, presiding, and the claims presented to
the Court having been duly tried and a decision having
been duly rendered,
IT IS HEREBY ORDERED AND ADJUDGED
THAT:
1. Judgment is granted in favor of plaintiff Kern Oil
& Refining Co. on the First, Second, Third, Fourth, Fifth,
5la
Sixth and Seventh Clauses of Action of the Consolidated
Amended Complaint.
(a) Plaintiff is to recover damages from defendant
Tenneco Oil Company in the sum of $16,751,639.00.
(b) Pursuant to Texas law, plaintiff is to recover
$ from defendant for attorneys’ fees and costs
incurred by plaintiff in prosecuting its breach of con-
tract claims, plus those attorneys’ fees and costs it in-
curred in connection with its regulatory, misrepresenta-
tion and fraud claims and its defenses against defend-
ant’s counterclaims, to the extent those legal services and
costs cannot be distinguished from legal services rendered
and costs incurred in prosecution of the breach of con-
tract claims.
(c) Pursuant to Texas law and Fed. R. Civ. P. 11,
plaintiff is to recover $ from defendant for at-
torneys’ fees and costs incurred in resisting defendant’s
post-trial motions heard on August 4, 1986.
(d) Plaintiff is directed to move pursuant to Local
Rule 16.10 for a hearing to determine the amount of at-
torneys’ fees and costs to be awarded under (b) and (c)
above, and upon such determination, those amounts shall
form part of this judgment.
(e) Plaintiff is to recover from defendant pre-judgment
interest in the amount of $15,180,303.00, plus additional
prejudgment interest in the amount of $ , as is
accrued on the amount described in (a) above from Jan-
uary 15, 1986 until date of this judgment, computed in
accordance with 28 U.S.C. § 1961.
(f) Pursuant to Fed. R. Civ. P. 54(d), plaintiff is to
recover $—————— for its costs of action from defendant.
(¢) Plaintiff is to recover postjudgment interest as is
accrued on the amounts described in {| l(a), (b), (¢), fe)
and (f) above and §2(c) below from the date of this
judgment until payment, computed in accordance with 28
U.S.C. § 1961.
52a
2. Judgment is granted in favor of counter-defendant
Kern Oil & Refining Co. on the Fourth Counterclaim.
(a) Counter-claimant Tenneco Oil Company is to take
nothing on the Fourth Counterclaim.
(b) The Fourth Counterclaim is hereby dismissed on
the merits.
(ec) Pursuant to Fed. R. Civ. P. 54(d), counter-
defendant is to recover $ for its costs of action
from counterclaimant.
3. Judgment has heretofore been entered in favor of
counter-defendant on all other Counterclaims, and coun-
ter-claimant is to take nothing on any counterclaim in
this consolidated action.
4. There is no just reason for delay in allowing this
Judgment to be appealed, and the Clerk: of this Court is
hereby directed, pursuant to Fed. R. Civ. Proc. 54(b),
to enter final judgment forthwith as to the claims re-
ferred to herein in accordance with the terms hereof.
DATED: 10 Oct., 1986
/s/ Laughlin E. Waters
THE HONORABLE LAUGHLIN E. WATERS
United States District Court Judge
Submitted September 5, 1986 by:
RICHARD E. SHERWOOD
SUZANNE F. DUFF
VERA P. PARDEE
O’MELVENY & MYERS
s/’ Suzanne F. Duff
SUZANNE F. DUFF
Attorneys for Plaintiff
and Counter-Defendant
Kern Oil & Refining Co.
53a
APPENDIX J
UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
Nos. 81-3253 LEW (Kx) &
82-6875 LEW (Kx)
KERN OIL & REFINING Co.,
Plaintiff,
Wa
TENNECO OIL COMPANY,
Defendant.
TENNECO OIL COMPANY,
Counter-Claimant,
v.
KERN OIL & REFINING Co.,
Counter-Defendant.
(Filed Nov. 21, 1986]
FILED UNDER SEAL PURSUANT
TO PROTECTIVE ORDER OF THE COURT
FINDINGS OF FACT AND CONCLUSIONS
OF LAW AFTER TRIAL
This matter having come on for bench trial com-
mencing December 3, 1985, the Honorable Laughlin E.
54a
Waters presiding, and the Court having considered the
Memoranda of Contentions of Fact and Law, the Pre-Trial
Conference Order, the Amendment to Pre-Trial Confer-
ence Order, the Trial and Post Trial Briefs, the testi-
mony, exhibits and argument presented at trial, and the
papers and arguments presented in connection with Ten-
neco’s post-trial motions to dismiss Kern’s causes of
action,
THE COURT HEREBY MAKES THE FOLLOWING
FINDINGS OF FACT AND CONCLUSIONS OF LAW:
A. FINDINGS OF FACT
1. To the extent these Findings of Fact are deemed
Conclusions of Law, they are incorporated into the Con-
clusions of Law that follow.
2. All stipulations of material fact contained in Para-
graph 5 of the Pre-Trial Conference Order and the
Amendment to Pre-Trial Conference Order are incor-
porated herein. All stipulations of fact in Paragraph 5
of the February 29, 1984 Pre-Trial Conference Order in
Case No. CV 81-0791, Ex. 263, that are relevant to this
litigation are incorporated herein. All Findings of Fact
in the July 27, 1984 Findings of Fact and Conclusions of
Law After Trial in Case No. CV 81-0791, Ex. 264, that
are relevant to this litigation are incorporated herein.
3. Myriad factual disputes were aired during the
course of trial herein. The resolution of these disputes
turns on the credibility of witnesses. Tenneco’s case was
based on a highly selective approach of specific instances
from which a general conclusion was urged. Kern pre-
sented more persuasive countervailing evidence. Ten-
neco’s selective evidence did not sustain the positions it
asserted, and the credibility of a number of Tenneco wit-
nesses was eroded.
4. Kern is a small “independent” crude oil refiner
whose only refinery is located in Bakersfield, California.
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Because Kern has no crude production of its own, it must
acquire from others all crude to be run in its refinery.
Kern’s profitability depends on the continuous avaiiability
of sufficient volumes of “light” crude to enable Kern to
produce high value products and to run its refinery at
optimal capacity. Kern frequently engages in sales (in-
cluding reciprocal sales) and exchanges of crude in order
to reduce transportation costs and obtain the most profit-
able supply of crude for its refinery.
5. Tenneco is a larger “integrated” oil company with
substantial crude production in California and elsewhere,
a refinery in Chalmette, Louisiana, and marketing facili-
ties in various parts of the country.
6. Tenneco first sold crude from its Yowlumne, Cali-
fornia field to Kern in 1975 pursvant to an October 1975
Tenneco-drafted contract, Ex. 1. As additional Yow-
lumne properties came into production after 1975, Ten-
neco sold the bulk of that crude to Kern. In June 1976
the parties executed a second Tenneco-drafted contract,
Ex. 2, formally committing Tenneco to sell Kern all crude
from the Tenneco properties from which Kern was by
then purchasing crude. Thereafter, as additional Yow-
lumne properties came into production, Tenneco again
sold that new production to Kern. In May 1977 the par-
ties entered into a new contract, Ex. 6, again drafted by
Tenneco, replacing their earlier contracts and formally
committing Tenneco to sell Kern all crude produced from
the properties listed in Exhibit A to that contract (which
included all Tenneco properties from which Kern was by
then purchasing crude). The May 1977 contract con-
tained no specific termination date; it was terminable by
either party on 90 days notice. Tenneco did not ter-
minate that contract until August 1980, effective Novem-
ber 30, 1980.
7. At or about the time of entering into the May 1977
contract, Kern and Tenneco orally agreed that Tenneco
would sell to Kern, under the terms of the May 1977 con-
56a
tract, crude from all Yowlumne properties coming into
production after May 1977. Subsequent Tenneco invoices
to Kern for such Yowlumne crude production identified
it as being sold pursuant to the May 1977 contract.
8. At no time did Kern represent to Tenneco that
Kern would refrain from asserting a regulatory “sup-
plier/purchaser” claim against Tenneco under 10 C.F.R.
211.63. Tenneco could have drafted a clause in the May
1977 contract attempting to waive its regulatory supply
obligations, such as appears in contemporaneous con-
tracts between Tenneco and others, e.g., Exs. 19, 26, but
Tenneco did not do so, and no waiver exists in the con-
tract or elsewhere.
9. In entering into the May 1977 contract, Tenneco
and Kern agreed and understood that all of Tenneco’s
sales to Kern beyond 3,000 barrels per day were to be
outright sales, and the May 1977 contract so states
clearly and unambiguously. Moreover, because the par-
ties specifically agreed in the contract to “balance” Ten-
neco’s sales only up to 3,000 barrels per day and because
other Tenneco contracts with third parties specifically
provided for balancing when it was so intended, it is
clear that Kern and Tenneco did not contemplate bal-
ancing Tenneco’s sales to Kern beyond 3,000 barrels per
day. Nor did Tenneco and Kern intend that Tenneco’s
unmatched sales over 3,000 barrels per day would be tem-
porary, or that they would be conditional in any respect,
or that Kern would merely be Tenneco’s marketing agent
for crude in excess of 3,000 barrels per day.
10. Beginning in approximately Spring 1978, a long-
standing scarcity of crude in California changed into
temporary oversupply. At the same time, Tenneco’s Yow-
lumne production increased substantially, to a point at
which it exceeded Kern’s refinery needs. Tenneco relied
almost completely on Kern to absorb Tenneco’s Yowlumne
production so as to avoid “shutting in” the Yowlumne
field.
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57a
11. In Spring 1978 Tenneco learned that the Four
Corners Pipe Line (“FCPL’) would become operational
in June 1978 for movement of crude eastward, thus pro-
viding the first opportunity physically to transport Yow-
lumne crude from California to east of the Rockies, from
where it could readily be traded for crude supply for
Tenneco’s Chalmette, Louisiana refinery. Tenneco wanted
to keep for itself the Yowlumne crude that it had agreed
to sell to Kern. Kern, at that time, did not need all the
Tenneco Yowlumne crude for Kern’s refinery.
12. Tenneco did not suggest to Kern that the May
1977 contract be amended or terminated so as to reduce
or eliminate Tenneco’s sales of Yowlumne crude to Kern:
Tenneco knew that Kern would not have given up its
rights to the crude, and Tenneco needed Kern’s coopera-
tion to move the crude out of the Yowlumne field. The
Yowlumne crude could be moved from the field to the
FCPL only through a pipeline owned by Texaco. Kern
had contractual rights to move crude through the Texaco
pipeline pursuant to a transportation service agreement
between Kern and Texaco, but Tenneco did not. Under
the terms of the agreement, Tenneco crude could be
transported through the Texaco pipeline only if title was
transferred from Tenneco to Kern to Texaco (and then
back from Texaco to Kern to Tenneco at the end of
the pipeline).
13. Instead of revealing its true intent to reduce and
eventually eliminate Yowlumne crude sales to Kern, Ten-
neco suggested that they enter into an agreement
whereby Kern would move approximately 4,500 barrels
per day of Tenneco’s surplus Yowlumne crude (i.e., crude
not needed for Kern’s refinery) for Tenneco from the
field to the FCPL. Tenneco drafted this July 1978 agree-
ment, Ex. 14, structuring it as a “sale” from Kern to
Tenneco at the end of the Texaco pipeline. (Tenneco was
already giving Kern title to the crude at the beginning
of the pipeline under the May 1977 contract). With the
58a
initial passing of title from Tenneco to Kern under the
May 1977 contract, then the Kern-Texaco-Kern pipeline
transfers of title, and then the passing of title back to
Tenneco under the July 1978 agreement, Tenneco was
able to transport its own crude back to itself at a point
where it could move that crude through the FCPL and
then trade it for supply at Tenneco’s Louisiana refinery.
The price Tenneco paid Kern at the end of the Texaco
pipeline was precisely the same as the price Kern had
paid Tenneco at the beginning of that pipeline plus
Kern’s gathering and transportation costs. The July 1978
agreement was a transportation service arrangement, not
a bona fide sale from Kern to Tenneco.
14. At the time of entering into the July 1978 agree-
ment, Tenneco assured Kern that Tenneco would not
leave Kern without a sufficient refinery supply, and,
based on Tenneco’s assurances, Kern understood that the
transportation arrangement would be limited to surplus
Yowlumne crude Kern could not use. Tenneco’s objec-
tive was eventually to take all of the Yowlumne produc-
tion for itself, but it concealed that intent from Kern.
Tenneco deliberately embarked on a program of con-
tractual and regulatory breach to protect its own inter-
ests at the expense of Kern.
15. Tenneco induced Kern to enter into the July 1978
agreement by falsely representing to Kern that Tenneco
would continue supplying Kern with sufficient Yowlumne
crude to meet Kern’s refinery needs. Tenneco acted in
bad faith toward Kern, capitalizing upon the circum-
stances of the crude oil glut and the opening of the Four
Corners Pipeline for its own purposes, in intentional
derogation of Kern’s rights.
16. At all relevant times, Tenneco was fully aware of
Kern’s refinery expansion plans and its dependency on
Yowlumne crude for refinery supp
This text is long and has been trimmed here. Open the source document for the complete record.
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