# Petition — Shore v. Longview Refining Co. > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385004_2095%3A1 ## Record - **Collection:** Supreme Court brief - **Document type:** Petition - **Published:** January 1, 1977 - **Citation:** 434 U.S. 836 ## Text eee se + "gee > se Supreme Cour, UG ©. W FILED sf‘ 7671863 ]] sw ie wn In THE MICHAEL RODAK, JR., CLERK Sapreme Court of the United States OcTOBER TERM, 1976 » a No. A-843 W. R. (BILL) SHORE,d/b/a SHORE OL. PRODUCTS, ET AL Petitioners, V. LONGVIEW )REF/NING COMPANY and CRYSTAL OIL ComMPANY, Respondents, PETITION FOR WRIT OF CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE FIF1H CIRCUIT JACK N. Price Price & WILLIAMS 305 Fast 11th Street Suite L-7 Austin, Texas 78701 (512) 474-1563 ATTORNEYS FOR PETITIONERS. — — aor TABLE OF CONTENTS TABLE OF CASES... ee ce ceceecceeceeeey Coseeeces arf GPSS GEM cece wee e ieee eedecreneeeess own 2 7. | ll Ae Tee eee eT EEE EET TERT LE 2 eee SEE. wc cc hee sed ce peensseceeee 2 STATUTES INVOLVED. ....... cece cesereresccees 6 Pemeeeers Ge Cee CRB c cc ccscepeesecsccsseak of 8 REASONS FOR GRANTING THE WRIT..............-- 13 1. The trial court correctly held that the overcharges by Respondents were willful... 13 (a) The trial court used correct standards to determine the question of willfulness.. 19 (b) The lower court is incorrect in its holding that an overcharge must have been made with the specific intention of charging a price which the Respondents knew wae in excess of the ceiling price allowing under the applicable regulation... 28 (c) The lower court incorrectly held that there must be "clear and convincing proof that an overcharge was willful"........... 30 2. The trial court correctly determined that Respondent Longview Refining Company violated the price "freeze" order......... 31 3. The trial court correctly determined that Respondents overcharged Petitioners under pricing regulations which followed the “SOO” GR cc cece ceo eee snereesecuseees 43 (a) Failure to make an effort to follow the pricing regulations constitutes a Bees SE 6 6 See + 664405 96S4S 6 0 Eek Ke 44 (b) The trial court correctly ruled that Respondents are not entitled to consoli- date operations for pricing purposes..... 49 (c) The lower court was in error in hold- ing that "reseller" has two different definitions, one of which is to ignored, while the other requires consolidation of retail subsidiaries in determining a ae a kok Swe Web 60 Ce Kae dw eR eESe 70 (id) The trial court made a proper deter- mination of "classes" and "base price" for purposes of application of the ge ee ae ee 85 (e) The lower court is incorrect in its holding that Petitioners failed to take into account the refiners incentive factor and erred in calculating the over- charge by using the current month as the MONCH GE WMROOUROUONS 6 cc cc ccecssteeseececs 93 (1) Month of measurement..............0.- 94 (2) Refiner's incentive factor........... 96 There is no necessity and no legal re- quirement for joinder of the adminis- trative agency, which would serve only to delay disposition of the case......... 100 CRE s See redeSeoeesceresrcosecesceseennss 102 Gees GF GP OG csc bac esecceresceveess 106 APPENDIX ii TABLE OF CASES Page American Surety Co. of New York v. Sullivan, 7 F.2d 605, 606 (2nd tt ssh eee ech ee eb eS eecee ee eoesess 20 Barr v. WUI/TAS, Inc., 66 F.R.D. 109 ES a 22 Burden v. U.S., 486 F.2d 302 (10th Cir., 1973) cert. den., 416 U.S. 904 (1974)..... 22 Esso Eastern Inc., Houston, Texas., Case ie seb eneeeeceeeeee sec es eeeeeees 81 Esso Standard Oil S.A. Ltd., Coral Gables, Florida, (Case No. FEE-1025)Par 20,748, page 20,963, Energy Management 1974 i Pec cc cag oneeeeeeees eee eceees 81 Esso Standard Oil S.A. Ltd., Exxon Corp., New York (Case No. FEA 20,300, Energy Management 1974 Transfer Binder).......... 80 Fields v. U.S., 164 F.2d 97, 99(1947)........ 21 Getty Oil Co. (Eastern Operation), Inc., Skelly Oil Co., N.Y., N.Y. (Case No. FEE-1101) Par 83,041, page 83,106, Energy Management 1975 Decisions.......... 82 Harrington v. U.S., 504 F.2d 1306, 1316 jt ee cece eee eaneceseeeeoveces 22 Kalb v. U.S., 505 F.2d 506, 511 th Mi ec cee ee eb ee eeeeeecevccoas 22 Manning v. University of Notre Dame, 484 ne CM. BUD cc ccccceeeeereeeee 19 McBride v. U.S., 225 F.2d 249 (Sth Cir.1955). 21 iii Monday v. U.S., 421 F.2d 1210 (7th Cir.1970). Newsome v. U.S., 431 F.2d 742 (5th Cir.1970). Pacific National Ins. Co. v. U.S., 422 F.2d 26, 33 (9th Cir.,1970) cert. den., 398 2 3 fC. RR ren per ee U.S. v. Allen, 317 F.2d 777 (2nd Cir.1963)... U.S. v. Byrd, 352 F.2d 570 (2nd Cir. 1965)... U.S. v. Couming, 445 F.2d 555, 556 (9th sa ead hate iden’ chu Haseena see Keks U.S. v. Futura, Inc., 339 F.Supp. 163 Ces ee |} Pee TET TTT EEC O TTT Tee U.S. v. Gulf, 408 F.Supp. 450(W.D.Pa.1975)... U.S. v. Hull, 346 F.2d 875 (2nd Cir.1965).... TEXTS CITED BeGen’S EG DESCCAOROTT, GER Be cccccsreccocecs Crystal Oil Company Annual Report, 1973...... Economic Stabilization Act of 1970, Pub.L. 92-210, 85 Stat, 743; Pub.L. 93-28, ee nse Ses ocac Gude oe aa eb One eee eee kecs Economic Stabilization Act of 1970, Gs EE re ee ea eee Economic Stabilization Act of 1970, Pe NS. 6 06 oes Wbe4 60.0664 b6 68 00088830 Economic Stabilization Act of 1970, ee ee ee eee Oe Economic Stabilization Act of 1970, ECE ede en aeened ead awkeeeee cess ae iv 22 22 22 21 21 21 24 24 21 20 76 14 14 13 19 Emergency Petroleum Allocation Act of 1973 P.L. 93-159,E.0. 11748 F.R. 33577......... 2 Executive Order No. 11723, 38 F.R. 15763, Se aed. Es GEE Bi ceccceeceunecceees 32 Executive Order No. 11723, 38 F.R. 15763, See en Bee ws WEOD Bk occéedeveesaecrneees 32 Executive Order No. 11723, 38 F.R. 15763, June 15, 1973, Section 8........eceeeeeeee 32 Mandatory Petroleum Allocation Regulations, 8 PPT eT eT ETE ETE ETL TC ETE TTT 10 mouse Bepert of Gec. ZIG, BBR... cccccceccseses 16 Senate Report on Sec. 210, ESA............. —— 10 C.F7.R. Chapter II, Section 212.31........>. 5 10 C.F.R. Chapter II, Section 212.82(a)...... 44 10 C.F.R. Chapter II, Section 210.82(f)...... 45 10 C.F.R. Chapter II, Section 212.82 (f)(1).. 91 10 C.F.R. Chapter II, Sec. 212.82 (f)(2)(i).. 45 10 C.F.R. Chapter II, Sec. 212.83(c)(1)(i)... 46 10 C.F.R. Chapter II, Sec. 212.83 (c)(2)..... 44 10 C.F.R. Chapter 12, Gece. BIR9.86...cccccsveces 97 10 C.F.R. Chapter 12, Sec. 212.91... ccccscces 70 Be Woche GG, Gree 6b v6 oe cache ce ei vetseeeeas 22 oe Ockke Dew COORURED FB, BOVE cc ccccccescéeseces 48 a Sole ees. Se ea, Ss bs hho oe6 eee oeees 80 Part 212, Chapter II, Title 10 Code of Pe TEE s ccc ceeceeseeecsce eens i oe In THE Supreme Court of the United States Octoser Term. 1976 No. A-843 W. R. (Bitt) SHore. da SHORE Ow Propucts. £T AL Petitioners, V. Loncview REFINING COMPANY and Crystac Ort Company. Respondents, SS PETITION FOR WRIT OF CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE FIFTH CIRCUIT TO THE HONORABLE SUPREME COURT OF THE UNITED STATES: Petitioners pray iuat a writ of certiorari issue to review the judgment and opinion of the Temporary Emergency Court of Appeals of the United States entered in this action on February 15, 1977, reversing the judgment of the district court awarding damages to the Petitioners for illegal overcharges in violation of the Economic Stabilization Act of 1970, as amended (Stablization Act), Pub.L. 92- 210, 85 Stat. 743; Pub.L. 93-28, 87 stat. 27, E.O. 11748, 38 F.R. 33575., and the Emergency Petroleum Allocation Act of 1973, as amended (Allocation Act), P.L. 93-159, E.O. 11748, 38 F.R. 33577 and regulations thereunder. OPINIONS BELOW The opinion of the Temporary Emergency Court of Appeals is unreported and is reproduced in Appendix A. The judgment and the findings of fact and conclusions of law of the district court are unreported, and are reproduced in Appendices C and D, respectively. JURISDICTION The final judgment of the Temporary Emergency Court of Appeals was entered on February 15, 1977. The Court of Appeals denied Petitioners Petition for Rehearing on March 23, 1977. The jurisdiction of this Court is invoked under 28 U.S.C. § 1254(1). QUESTIONS PRESENTED After trial before the court, the United States District Court for the Eastern District of a Texas, Tyler Division, found that the Respondent Longview Refining Company violated the price "freeze" order, 1.e., Executive Order No. 11723, 38 F.R. 15763, June 15, 1973, and that the Respondents Longview and Cryst overcharged the Petitioners under pricing regulations following the freeze order. The Temporary Emergency Court of Appeals reversed and remanded for further proceedings. The questions presented are: 1. (a) Whether the Temporary Emergency Court of Appeals correctly held that the trial court applied incorrect standards in determining that the overcharges by the Respondents were willful . (b) Whether the Temporary Emergency Court of Appeals correctly held that to be willful an overcharge "must have been made with the specific intention of charging a price which the defendent knew was in excess of the ceiling price allowable under the applicable pricing laws and regulations". (c) Whether the Temporary Emergency Court of Appeals correctly held that there "must be clear and convincing proof that an overcharge was willful. Whether the Temporary Emergency Court of Appeals correctly held that the overcharges during the "freeze" period were not determined by correct standards and must be relitigated. (a) Whether the Temporary Emergency Court of Appeals is correct in holding that the failure of a defendent to perform the calculations under the pricing formula constitutes no legal wrong. (b) Whether the Temporary Emergency Court of Appeals correctly held that in testing the overcharge under the pricing formula defendants are entitled to consolidate certain of their operations for pricing purposes. (c) Whether the Temporary Emergency Court of Appeals correctly held that "reseller" has two different definitions in the regulations under the allocation EE To ee act and that one definition (in subpart B, 10 C.F.R. § 212.31) is not to be considered while the other definition (in subpart F, 10 C.F.R. 212.91) is to be considered in defining "refiner" (under subpart E, 10 C.F.R. 212.81, et. seq.). (d) Whether the Temporary Emergency Court of Appeals correctly held that the trial court did not make proper determination of "class(es)" and "base price" for purpose of application of the pricing formula. (e) Whether the Temporary Emergency Court of Appeals correctly held that the plaintiffs' calculations of the overcharges, on which the trial court relied, failed to take into account the refiner's incentive factor and erroneously figured the overcharges by using the current month as the month of measurement. Whether the Temporary Emergency Court of Appeals was correct in ordering the joinder of the Federal Energy Administration upon the remand for retrial. STATUTES INVOLVED The Economic Stabilization Act of 1970 as amended (Stablization Act) Pub.L. 92-210 85 Stat. 743; Pub.L. 93-28, 87 Stat. 27; und the Emergency Petroleum Allocation Act of 1973 as amended (Allocation Act) P.L. 93-159 ; O 11748, 38 F.R. 33577 and the vedelutions promulgated thereunder are directly involved in this case. The pertinent portions of the Economic Stabilization Act (which were adopted in Sec. 5 (a) of the Allocation Act) are: "(a) Any person suffering legal wrong because of any act or practice arising out of this title, or any order or regulation issued pursuant thereto may bring an action in a district co m of the United States, without poe, 2 the amount in controversy, for appropriate relief, including an action aor a declaratory judgment, writ of injunction (subject to the limitations in Sec. 211), and/or damages. (b) In any action brought under subsection (a) against any person renting property or selling goods or services who is found to have overcharged the OO ——— s—SSCiCS plaintiff reasonable attorney's fees and costs, plus whichever of the following sums is greater: (1) an amount not more than three times the amount of the overcharge upon which the action is based, or (2) not less than $100 or more than $1000; except that in any case where the defendant establishes that the overcharge was not intentional and resulted from a bona fide error notwithstanding the maintenance of procedures reasonably adapted to the avoidance of such error the liability of the defendant shall be limited to the amount of the overcharge;" The regulations pertaining to the questions presented in this case are contained in Appendix A to the opinion of the Temporary Emergency Court of Appeals, or in 10 cl athe Part 212 to which regulations specific reference will be made in the text of this petition. 7 STATEMENT OF THE CASE Petitioners, at pertinent times, have been in the business of purchasing gasoline and diesel fuel directly from one or more refineries and reselling the gasoline to or through service Station facilities for retail distribution to customers. All have been purchasers of gasoline and/or diesel fuel from the Respondent Longview Refining Company for varying periods of time. Longview Refining Company is a domestic corporation which owns and operates a refinery in Longview. Texas. Prior to its acquisition by Respondent Crystal Oil Company of Shreveport, Louisiana, the stock of Longview Refining Company was privately held. Longview Refining Company became a wholly-owned Subsidiary of Crystal Oil Company, effective November 1, 1973. Crystal Oil Company owns all of the outstanding corporate stock of the following corporations (in addition to Longview Refining Company): Berry Petroleum Corporation, Crystal Service Corporation; Crystal Resources Incorporated; Crystal Indonesia Oil Corporation; Mercury Discount Corporation; Tulsa il Corporation; Crystal Petroleum ‘wxupor *on; ’ Stone's Enterprises, Incorporated; Stone's Independent Oil Distributors, Incorporated; Stone's Independent Oil Company; Panhandle Towing Company; High Octane Terminal Company; Joe E. Hutchison Distributing Company; High Octane Terminal Company; Joe E. Hutchison Distributing Company; Adobe Refining Company; Crystal-Princeton Refining Company; Crystal Sharjah Oil Company; and Crystal-Rico Company. The Crystal subsidiaries are located in various parts of the United States and overseas, and service different market areas. Some of the companies are engaged in refining, while others are engaged in retail distribution, crude oil production, and non-petroleum _ industry activities Phase IV pricing regulations were ushered in by Presidential Proclamation or Executive Order establishing a "freeze" period, effective June 13, 1973. The "freeze" period was due to expire on August 12, 1973, but was extended to August 19, 1973. On August 19, 1973, the "freeze" period was superseded by regulations promulgated pursuant to the Economic Stabilization Act of 1970. The Phase IV price I , ee regulations were originally codified in Part 150, but subsequently recodified in Part 212 of Chapter II of Title 10 of the Code of Federal Regulations. Mandatory Petroleum Allocation Regulations enacted pursuant to the Emergency Petroleum Allocation Act of 1973 were codified in Part 211, and administrative procedures applicable thereto were set forth in Part 205. During the "freeze" period of the Phase IV regulations and for approximately two and one-half months after the effective date of the pricing regulations under Phase IV, Longview Refining Company was a privately- owned, wholly independent corporation. After the "freeze" period, while the stock of the Longview Refining Company was still privately held, Longview enacted opprice increases purporting to be in accord with the Phase IV regulations and the pricing formula contained therein. After the acquisition of the stock of the Longview Refining Company by the Crystal Oil Company on November 1, 1973, a series of price increases ensued, which drastically altered the pricing structure of gasoline and diesel, and detrimentally affected the operations of the Petitioners, certain of whom were ultimately forced out of business. 10 The net result of these pricing practices was to reduce purchases by the Petitioners. Prior to the acquisition of Longview by Crystal, Petitioners historically purchased approximately 30% of the output of Longview Refining Company. After the acquisition Petitioners' purchases were reduced _ to approximately 9.4% of the output. This reduction was in accord with the apparent design of Crystal to divert the supply of Longview Refining to its own retail distribution system. Substantial overcharges resulting from the series of price increases instituted after Crystal's acquisition of Longview were admitted by Crystal's representatives, publicly, (letter dated March 8, 1974, filed with the Federal Energy Office, R. 538-39), and in testimony (R. 539, et. seq.). Initially, there was no effort whatsoever to follow the formula specified in the pricing regulations. Effective about March, 1974, well after suit was filed (and after the alleged period of overcharges) Respondents did purport to commence following the formula, but failed to consider the large accumulated overcharge originating January, 1974, and prior thereto, in the application of the formula. As of 11 April, 1974, the Respondents were ostensibly following the formula, without carrying forward the accumulated overcharge, to the operations of Longview Refining Company as a Separate entity. (See Cross-examination of Mr. Burns, R. 538 et. seq., and discussion, infra. ). Shortly before trial, Respondents advised that they had revised their position, and were applying the formula to Crystal and certain of its subsidiaries on a consolidated basis. Through this process Respondents took the position that the overcharge had been eliminated. (This occurred well after the end of the period of overcharge alleged by Petitioners, i.e., February 28, 1974.) Petitioners’ suit presented for determination questions as to the validity of the "freeze" price charged by Longview Refining Company during the period June 15, 1973 through August 19, 1973, and the price emrenes enacted by Longview Refining Company after the ettective date of the pricing regulations. After judgment in Petitioners’ favor, Respondents' appeal produced the opinion by judge Estes of the T.E.C.A., which gives rise to the questions here presented. 12 REASONS FOR GRANTING THE WRIT h. The trial court correctly held that the overcharges by Respondents willful. The Economic Stabilization Act, Pub.L. 92-210, 85 Stat. 743, Pub.L. 93-28, 87 Stat. 27 provides in Section 210(a) that any person suffering legal wrong because of any act or practice arising out of this title or any order or regulations issued pursuant thereto, may bring an action in a district court of the United States, without regard to the amount in controversy, for appropriate relief, including an action for declaratory judgment, writ of injunction and/or damages. Section (b) provides that in any action brought under Subsection (a) against any person selling goods who is found to have overcharged a plaintiff, the court may, in its discretion award the plaintiff reasonable attorney's fees and costs, plus whichever the following sums is greater: (1) An amount not more than three times the amount of the overcharge upon which the action is based, or (2) Not less than $100.00 nor more than $1,000.00 expect that in any 13 case where’ the defendant establishes that the overcharge was not intentional and resulted from a_ bona _ fide error notwithstanding the maintenance of procedures reasonably adapted to the avoidance of such error, the liability of the defendant shall be limited to the amount of the overcharge. Section 210 (which was adopted by Section 5(a) of the Allocation Act) further provides that where the overcharge is not willful within the meaning of Sec. 208(a) no action for the overcharge may be brought unless the plaintiff has first presented to the seller a claim for refund and has not received payment for the overcharge within ninety days. Sec. 208(a) gives no definition of willful, buy simply states that whoever willfully violates any order or regulation shall be fined not more than $5,000.00 for each violation. The proper definition of "willful" within the context of a civil suit for recovery of overcharges is a question of considerable importance. 14 The Economic Stabilization Act, the Emergency Petroleum Allocation Act, and the Mandatory Petroleum Price Regulations constitute a complex and pervasive system for the regulation of one of the nation's largest industries. The industry is so large and so complex that effective centralized enforcement of the price regulations governing it is impossible. Congress recognized this fact, and enacted Sec. 210 to deal with the problem. The Congressional purpose was to provide for private action by those firms with the most direct interest in effective enforcement and the most immediate knowledge of any violation. As stated in the Senate report on Sec. 210: "Section 210 provides a traditional method by which violators of regulations may be discovered and other would-be viclators may be deterred. This can be accomplished by authorizing a me hag suffering a legal wrong to ring a treble damage action against a violator. (S. Rep. 92- 507, Nov. 20, 1971, to accompany S. 2891)." iS The House report is even more specific: "The Committee, in line with the Administration's emphatic request for voluntary surveillance to assure compliance with price and rent regulations and orders, — this section so that it would serve not only to provide a strong deterrent to those who would willfully violate this Act. { H — i 92-714, December , , Oo accompan H.R. 11309) ." sities Thus, Congress (by enacting Section 210 and incorporating it into the Emergency Petroleum Allocation Act) attempted to enlist the numerous purchasers of petroleum products as "private attorneys general" to assist in discharging the responsibility of enforcement. Congress obviously was aware that mistakes might occur in a firm's attempt to adhere to a complex set of regulations. To protect against precipitous suits resulting from unintentional overcharges it included a requirement of notice and ninety-day waiting period in Sec. 210. Just as obviously, it was not the intention of Congress to clog the vital process of private enforcement with a superfluous and unnecessary notice requirement 16 - ~ when such notice would accomplish nothing. Therefore, the willfulmess exception was adopted. The opinion of the lower court places strictures upon the proof of willfulness which thwart the will of Congress and are at variance with both civil and criminal definitions of the term. It reaches the conclusion that pricing decisions entirely made without reference to the regulations and consistently and consciously adhered to by the Petitioners can not be the basis for an allegation of "willful" overcharge, even though such_ decisions’ result’ in overcharges. The self-enforcing nature of the regulations envisioned by Congress is thus undermined, and the ability of purchasers of petroleum products to recover overcharges inflicted upon them is substantially weakened, if not altogether stifled. The purpose of the ninety-day notice provision was to provide an opportunity for a seller to correct an honest mistake. In cases where it is clear that the seller will not correct the mistake, the ninety-day waiting period is an unnecessary and unreasonable burden. 17 Notice is a useless and _ dilatory exercise in cases where the supplier has indicated its determination to continue charging the price which it has been charging. The lower court is correct when it notes that the act contains no provision which would "excuse failure to present a claim for refund simply upon a conclusion that it would have been futile" (Footnote 17, page 12, Appendix A). But where the futility is born of the sellers persistence in its pricing decisions, and those decisions result in overcharge, the willfulness exception should be satisfied. An action should be considered willful if it is intentional, the result of a fixed and deliberate decision, and unlikely to change. The trial court stated in Conclusion of Law 14 (App. D) that the civil meaning of willfulness is applicable. Having so stated, the trial court then formulated the test for willfulness applicable to the present case: "...Thus, in the framework of this case, an overcharge is willful where it is deliberate, or where it is the natural and probable consequence of actions of the defendants which are voluntary and intentional or which are in reckless disregard of the 18 applicable regulations, as opposed to being the result of a bona fide error notwithstanding the main tenance of procedures reasonay adapted to the avoidance of suc error.” (C.L. 14, App. D, emphasis supplied). When the wording and intent of Sec. 210 are considered, it is apparent that this quotation embodies the correct standards for the "willfulness" determination and it matters not whether the test is denominated "civil" or "criminal". (a) The trial court used correct standards to determine the question of willfulness. The lower court held, because Sec. 210(b) refers for the meaning of "willful" to Section 208(a), the term must be construed in its "criminal sense," a contention suppported by dictum in Manning v. University of Notre Dame, 484 F.2d 501 (Em.App. 1972). But the court ignored the standards actually used by the trial court, and did not evaluate whether those standards. satisfied the criminal definition (worse, the court added standards not contemplated under a criminal definition, which 19 are discussed in the next two sections of this petition). Even in the criminal law, a definition of willfulnmess as deliberate and _ intentional conduct is approved. It is commonplace that "{i]gnorance of the law, which everyone is bound to know, excuses no man. A mistake in point of law is in criminal cases, no sort of defense." Black's Law Dictionary, 4th Ed. at 881, citing Blackstone. It is just as axiomatic that a defendant in a criminal case is presumed to intend the natural and probable consequences of his actions. Thus, an act may be deemed to be willful in the criminal law if the actor intends the result which actually occurs, i.e., if that result is not accidental or involuntary. This position was articulated by Judge Learned Hand in the often-cited case of American Surety Company of New Yor’ v. Sullivan, 7 F.2nd 605, 606 (2nd Cir. ,1925): "The word ‘'willful', even in criminal statutes, means no more than that the person charged with the duty knows what he is doing. It does not mean that, in addition, he must suppose that he is breaking the law (Emphasis supplied). 20 For over half a century, Judge Hand's definition of "willfulness", which is directly contrary to the lower court's definition, has been followed in innumerable cases construing the term as used in federai criminal statutes. See, e.g., Fields v. United States, 164 F.2d 97, 99 (D.C.Cir., 1947) (Contempt of congressional committee); MeBride v. United States, F.2d 249, 254 (5th Cir.,1955) (falsification of narcotics records); United States v. Couming, 445 F.2d 555, 556 (9th Cir.,1971) (selective service). Accord, United States v. Allen, 317 F.2d 777 (2nd Cir. ,1963); United States v. Hull, 346 F.2d 875 (2nd Cir. ,1965); United States v. Byrd, 352 F.2d 570 (2nd Cir.,1965). In these cases, the court frequently looked to the specific purpose of the statute which it was construing before settling on the American Surety meaning of "\ illfulness", as opposed to another definition. The purpose of Sec. 210 mandates an expansive interpretation of "willfulness". The fact that this word has been given the same meaning in a criminal (Section 208(a)) and a civil (Section 210(b)) provision should provide evidence that the word does not import into the statute any "specific intent" or “evil motive" 21 test, for such a test is unheard of in the civil law. In the analogous case of the civil penalty imposed pursuant to 26 U.S.C. § 6672 for "willfully" failing to collect withholding taxes, it has been held that the term means a voluntary, conscious and intentional failure to withhold, and that no bad motive or intent to defraud need be shown. Harrington v. United States, 504 F.2d 1306, 1316 (Ist Cir.,1974); Kalb v. United States, 505 F.2d 506, 511 (2nd Cir. ,1974); Burden v. United States, 486 F.2d 302 (10th Cir. ,1973), cert. denied, 416 U.S. 904 (1974), Newsome v. United States, 431 F.2d 742, 745 (Sth Cir.,1970); Pacific National Ins. Co. v. United States, 422 F.2d 26, 33 (9th Cir. ,1970), cert. denied, 398 U.S. 937 (1970); Monday v. United States, 421 F.2d 1210, 1215-1216 (7th Cir. ,1970). No contrary instance has been found in which the word "willful" in a civil statute connotes a specific intent or bad motive. A broad definition of the criminal meaning of the word "willful" was adopted by the only other court to consider this question in the context of a suit for overcharges. In Barr v. WUI/TAS, Inc., 66 F.R.D. 109 (S.D.N.Y.,1975), 22 Judge MacMahon, a district judge well seasoned in criminal trials, held that: "While it is true that 'the term willful overcharge must not be construed in the criminal sense’, this does not mean as defendant Suggests, that defendant must have Specifically intended to Violate this’ particular law or even that it must have been aware that its conduct was against the law. Willful, when construed in the ciminal sense, simply means that defendant must have Known what it was doing, that it acted voluntarily, deliberately and on purpose, and not because of mistake, accident, carelessness or other innocent — reason.” (Emphasis supplied). This is merely a paraphrase of the standards used by the trial court in tne present case. The cases cited by the lower court do not support its contention that willfulness in an overcharge case must connote a specific intent to violate the law. In Manning, supra, the lower court held that an overcharge made before the imposition of price controls, although relating to a service to be performed after that imposition, could not be considered willful. The defendants 23 rebutted a charge of willfulness by immediately offering to refund the alleged overcharge. The Manning case can therefore be explained far more clearly as a specialized example of inadvertence or accident that as a case establishing any broad definition of willfulness. Futura! and Gulf? were criminal cases interpreting Section 208(a) of the Economic Stabilization Act. In Futura, the court held that a landlord who had made an obvious effort to persuade his tenants to help him circumvent the law had acted willfully within the meaning of Section 208. In Gulf, the court held that willfulness was a question of fact which could not be addressed on a motion to dismiss. Neither case held that willfulness could not exist in a case where it was shown that the defendant intended to charge the price which in fact was charged, at a time when the charging of the price was unlawful. 1 U. S. v. Futura, Inc. (N.D-FISTST nc., 339 F.Supp 163 2 U. S. v. Gualf (W.D.Pa— i975). — , 408 F.Supp. 450 24 In view of the foregoing considerations, it is clear that there is ample support in the legislative history and applicable judicial precedent for an interpetation of the word "willful" which would comport with the ‘standards used by the trial court, even when those standards are judged under criminal law. The word "willful", as used in the Act, was not intended to require specific knowledge by the seller that the price charged exceeded the price that would result from proper application of the pricing formula, or proof that the seller acted with an evil purpose or bad motive. In the typical price overcharge case, a willful act is one which results in the plaintiff being charged the price which defendant intended to charge him, which price is at that time unlawful. A willful overcharge, as held by the trial court, is cne which: "is deliberate, or...is the natural and probable consequence of actions...which are voluntary and intentional or which are in reckless disregard of the applicable regulations, as opposed to being a bona fide error notwithstanding the maintenance of procedures reasonably adopted to the avoidance of such error." 29 Further evidencing the fact that the overcharge was willful, under any test, is the court's Finding of Fact No. 24 (App. D): "24. The overcharge was willfully made, defendants having pen eo and intentionally manipulate eee of the formula, wi which they evidenced thorough familiarity, from the time that Mr. Burns and the attorneys began collaborating regarding calculations, for the evident purpose of preventing recoupment of overcharges through proper application of the formula. Under the circumstances, it is clear that any request for refund on the part of the plaintiffs, prior to suit, would have been ignored by defendants." Respondents displayed a thorough knowiedge of the applicable regulations, but wholly failed to follow those regulations and failed to maintain "procedures reasonably adapted to the avoidance" of error, a consideration of diminished materiality since Respondents deliberately imposed and persisted in deliberately maintaining the overcharges. The overcharges were not the result of a "bona fide error", such as innocent miscalculation, but were the 26 intentional actions of the Respondents. The trial court's determination of willfulness is based upon its conclusion that the overcharges were deliberate, and were the natural and probable consequences of actions which were voluntary and intentional and in reckless disregard of the applicable regulations. Under these findings, a verdict of "guilty" of a crime requiring scienter would be upheld, for it is settled that a defendant must be presumed to know the law, and must also be presumed to intend the natural and probable consequences of his actions. Therefore, a deliberate overcharge, or an overcharge which is the natural consequence of voluntary, intentional acts by the Defendants, or acts in reckless disregard of the pricing regulations, is willful under criminal standards. In this respect, the lower court's indication that the trial court based the finding of willfulness on simple negligence is incorrect and is rebutted by both the trial court's findings and the record, which make it clear that Respondents were guilty of much more than simple negligence. In the final analysis, it must be determined whether the risk of a conscious decision to charge a given price will fall upon the seller, 27 who chooses to charge that price, or upon the innocent purchaser. The Congressional intent dictates that the risk should fall upon the seller. The result reached by the lower court means that a seller can either ignore or abuse the regulations, and argue that it was acting in good faith, and without "evil motive", i.e., specific intent to charge an unlawful price, and so escape penalty and/or suit without notice. This determination will inevitably lead to subversion of the regulatory scheme, and will eviscerate the clear intent of Congress. (b) The lower court is incorrect in its holding that an overcharge must have aoe pene with the specific intention 0 chargin a price which the Respondents knew was in excess of the ceiling price allowable under applicable pricing laws and regulations. In holding that to be willful an overcharge "must have been made with the specific intent of charging a price which the defendant knew was in excess of the ceiling price allowable under the applicable pricing law and regulations" the lower court ingnores existing criminal law and adds an element to a Plaintiff's burden of proof which will virtually eliminate the 28 imposition of penalties for overcharges. This language provides an invitation to sellers to totally disregard pricing regulations. It gives validity to a plea of “ignorance” as a complete defense to penalties. It disregards’ the presumption that a defendant is held responsible for natural and probable consequences of his actions. The Respondents were aware of the applicable regulations and the duties imposed upon them from the outset, but chose to ignore those duties. This court's opinion may well provide a haven for them and others who totally ignore, or make no bona fide effort to comply with the regulations, for they will be able to plead that they did not know that their prices exceeded that which is authorized since they made no attempt to determine the ceiling price. This incongruous result obviously is not in accord with criminal law, nor the regulations governing pricing, which have consistently, through all amendments, made it clear that the base price (both during the freeze period and after) and any additions to base price must be determined in accord with the terms of the regulations. Under the regulations, no price in excess of the base price is authorized except 29 when calculated in accord with the pricing formula. (See discussion infra.) But the lower court's opinion allows the seller to charge any price it desires without penalty, so long as it does not know that the price exceeds the allowable ceiling price. The seller is, in effect, encouraged to ignore the regulations in setting his price, and thus escape knowledge of his overcharges and, hence, the penalty. Surely this illogical and inequitable result can not stand. (c) The lower court incorrectly held that Brat that an overcharge Wes Walrul” The lower court added a standard of proof that is not encompassed by the Economic Stabilization Act, the Emergency Petroleum Allocation Act, or the regulations thereunder, in making the observation that there "must be clear and convincing proof that an overcharge was willful". There is no justification for adding to the civil burden of proof. The fact that the civil tribunal is called upon to apply a criminal definition of willful does no mean that the burden of proof is changed. In order to invoke the "clear and convincing" standard in a civil case, 30 and thereby depart from the ordinary civil standard a basis’ either in_ statute or administrative regulation must be found. There is none in this case. There is no warrant for changing the burden of proof by judicial fiat. The definition of willfulness in the context of the pricing and allocation regulations is of utmost importance. The Congressional intent in providing self-regulatory features is subserved by an unrealistic (and unauthorized) definition of willfulness and an equally unrealistic (and unauthorized) burden of proof. The lower court's opinion is not in accord with established legal principles or the language of the Acts in question or the intent of those who enacted them. The opinion will undoubtedly hamper private enforcement and provide encouragement to those who make no bona fide effort to comply with pricing regulations. It is respectfully submitted that a matter of this importance deserves the attention of this Court. - The trial court correctly determined that Respondent Longview Refining Company violated the price ‘treeze order. Executive Order No. 11723, 38 F.R. 15763, June 15, 1973, provides in Section 1: "Effective 9:00 EST, June 13, 1973, no seller may charge to any class of purchaser, and no purchaser may pay a price for any commodity or service which exceeds the freeze price charged for the same or a_ similar commodity or service in transactions with the same class of purchasers during the freeze os period. This order shall e effective for a maximum of | days from the date hereof, until 11:59 P.M. EST, August 12, 1973. It is not unlawful to charge or pay a price less than the freeze price and the lower prices are encouraged." Section 2 of the Order provides that each seller shall prepare a list of freeze prices and maintain a copy available for public inspection during normal business hours. In addition, the calculations and supporting data are required to be maintained by the seller, to be made available on request to representatives of the Economic Stabilization Program. Section 8 of the Order contains the following definitions: 32 "'Preeze Price' means the highest price at or above which at least 10% of the commodities or services concerned were priced by the seller, and transactions with the class of purchaser concerned during the freeze phase period. In computing the freeze price, a seller may not exclude any temporary special sale, deal or allowance in effect during the freeze phase period. "Class of purchaser' means all those purchasers to whom a Seller nas charged a comparabie price for comparable commodities or services during the freeze base period pursuant fo customary price differentials between those purchasers and other purchasers. ‘'Preeze base price’ means (a) the period June lst to June 8, 1973, or (b) in the case of a seller who had no transactions during that period, the nearest preceding seven-day period in which he haa a transaction. "'Transaction' means an armslength sale between unrelated persons, and is considered to occur at the time of shipment in the case of commodities, and in the time of performance in the case of services." (Emphasis supplied). From May 25, 1973 through approximately June 7, 1973, the prices in effect 33 at Longview Refining for all customers were .1600 cents for regular gasoline, .1800 cents for premium gasoline, and .1500 cents for diesel fuel. (P. Ex. 1, p. 1) As of June 7, 1973, the prices were changed, making the prices .1725 cents for regular gasoline, .1925 cents for ethyl gasoline, and .1625 cents for diesel fuel. (P. Ex. 2, p. 4; price book information obtained from Respondent Longview Refining). Longview Refining maintained a multi- price level, i.e., charged different prices to different customers, until the enactment of the price increase’ effective May 25, 1973. Thereafter, and at all times during the freeze period, all customers were charged the same prices. (However, Respondents claim an early, i.e., June 4th price increase to American Petrofina, which was retroactively invoked). There was no distinction in customers as to price, and no separate classes for pricing purposes within the meaning of Section 8. (R.3 30-31, P. Ex. 2). ; 3 "R" refers to the two volumes of the Record of Proceedings", which contains a transcript of the trial testimony. 34 Longview Refining Company did not sell at least 10% of the gasoline and diesel fuel sold during the period June lst through June 8th, at the higher prices of .1725 cents for the Executive Price Freeze Order was announced) a debit memorandum was issued raising prices to American Petrofina to the level of .1725 for regular gasoline, .1925 for premium gasoline, and .1625 for diesel fuel, retroactive through June 4, 1973. (R. 452). French Peterson, who was the President of Longview Refining Company, testified repeatedly that on June 6, 1973, he had given instructions to "Reba" and "Buck" (employees of Longview Refining Company) to raise prices to all customers. (R. 439, R. 477, and R. 400). Peterson candidly admitted, "I was afraid we were going to have a freeze," (R. 430) " ..and I might add, counsellor, if you expect a freeze to come, you better get all you can, becuase you can always cut your prices after the freeze goes off; otherwise you might go out of business." (R. 456). "...1 wanted a price | could live with if it were frozen". (R. 456). Mrs. Reba Morrow testified that she received a phone call from Mr. Peterson 35 instructing her to put the increased price in effect for all customers at the same time. (R. 473). She did not recall whether the date was the 4th, 5th, or 6th of June. (R. 472-3). She Stated that despite daily working with prices, invoicing, and manifests, it was not detected that American Petrofina's price was not raised until the 16th of June. (R. 473-5). She could offer no explanation as to why all customers were being charged one price and American Petrofina being charged another price, nor could she explain why the fact was not detected earlier than June 16th. (R. 474). Considering all purchasers during the period June lst through June sth ,4 the 4 Although the Executive "freeze" Order speaks in terms of a period of June lst to June 8th, 1973, (Sec. 8(a)), or a "preceding seven- day period (Sec.(b)), interpretative commentary of the Cost of Living Council embodied in question and answer form is as follows: "Q Is the freeze base period of the first seven days in June or the first eight days in June? A The freeze base period is the first eight days in June 1973; June lst through June 8th. If no transaction occurred during that period, the nearest preceding seven-day period in which a transaction occurred is used as the freeze base period." 36 retroactive billings to American Petrofina through June 4th, are necessary in order to assure that at least 10% of the total purchases were at the increased prices. Backbilling American Petrofina to June 6th will not suffice. Inconsistency in Respondents’ position was evident. According to French Peterson, a call was made on June 6th giving instructions to raise the price to all customers immediately, but there was not mention of placing the price increase in effect earlier (on June 4th) for American Petrofina (alone). Accepting the contention of clerical error, and putting in effect the price increase for American Petrofina the same day as the increase became effective for other customers, i.e., on June 6th, the result of 10% of total sales at the higher prices is not achieved. It is obvious, therefore, that even if there was bona fide clerical error in failing to put the increase in effect originally, when the oversight was detected on June 16, the benefit of hindsight was deliberately used in order to retroactively "back-bill" through June 4, thus 4 (cont) Accordingly, the computations were made on the basis of an eight-day period. 37 achieving sufficient sales at the highest prices to justify the "freeze" charges at the higher levels. Accordingly, it is apparent (and the trial court correctly held) that the retroactive billing through June 4th was a device used to achieve justification for charging the increased prices during the freeze period. Even if this were not true, under the definition of "transaction" contained in Section 8 of the "Freeze" Order, the prices that must control are those which are actually charges at the time of the sales in question, and not subsequent additions through retroactive billings or debit memos. Otherwise, the door would be open to fraud, for there would be no practical way to distinguish between a genuine billing error and a device to achieve higher prices. Therefore, the Respondent Longview Refining Company made illegal overcharges during the freeze period, which, based upon gallons of regular, premium and diesel purchased by the Petitioners, as shown on Page 2 of P.Ex. 2, amount to $73,027.59. This figure was not challenged by the Respondents, despite which the lower court picyunishly observed that the trial court's finding of the overcharge was 38 | not sufficiently definite because it did not allocate the overcharge to each Petitioner, which is simply a matter of mechanical calculation (with J. C. Bell excluded because he could not furnish his purchase figures). This certainly does not constitute a basis for reversal of the trial court's findings with respect to the freeze period overcharge. It is also clear, as_ particularly evidence by the testimony of French Peterson, that the overcharge was willful and an evasion of the order, entitling the Petitioners to the assessment of penalties. Mr. Peterson stated that the instruction was given to raise prices to all customers at the same time. Yet, three days after the "freeze" order became effective, American Petrofina was "back-billed" so that its prices were retroactively raised effective two days before the price increase to other 9 In this same view, the lower court observes that the regulations under which the trial court decided the case was not "in effect" at all times during the overcharge period. But the — does not point out an instance where a change in the regulations is pertinent to the uestions under consideration. The observation, therefore, is meaningless and superfluous. 39 is apparent that the trial court was justified in finding a willful evasion of the order, even under the unauthorized tests laid down by the lower court. At the time of back-billing, Peterson knew that the higher price would not be authorized unless the price increase was made retroactive to June 4th. The evidence of manipulation is "clear and convincing". Petitioners did not discover’ the overcharge during the freeze period until after Suit was instituted and during the course of discovery. Respondents denied the overcharge from the time the issue was first raised, and still deny it. Any extra-judicial request for refund of the concealed overcharge would not only have been impossible prior to suit, but obviously would have been futile if made, and would be futile now if this case were abated to allow such a demand. The transparent sham, which justified the finding of a willful overcharge, compels the finding that a demand for refund would have been useless. The lower court based reversal of the trial court's freeze period overcharge determination on the trial court's application of a civil standard of willfulness, and failure to find 40 individual overcharges with respect to each Petitioner. In light of the discussion of willfulness in the first portion of this application, and the evidence which justified the finding of willful, knowledgeable manipulation, it is evident that the "willful" point does not justify reversal, and failure to allocate the overcharges to each Petitioner clearly does not require retrial. The lower court also noted Respondents' contention that American Petrofina was in a separate "class", but did not assign this as a basis for reversal. Clearly no "class" question is involved in the freeze period overcharge. As the lower court conceded, albeit in a footnote (No. 22, page 19, App. ) on May 25, 1973, Longview Refining began charging all customers the same prices, and Respondents' attorneys stated in a letter that "since June [Longview has] had only one class of gasoline purchasers". P.Ex.6, Ex. P. 118. The "freeze" went into effect in June and the freeze measurement period was in June, so the "freeze" obviously concerned only one class consisting of all purchasers. 7 The lower court's observation that Mr. Peterson testified that Petrofina's price 41 increase was to have been effective June 4, 1973, is not supported by the record. Instead, Mr. Peterson testified repeatedly that the order to increase price to all customers had been given on June 6 (which date will not serve to justify the higher pricing). This treatment of the facts is akin to Mr. Peterson's back-billing with hindsight knowledge of the Presidential "freeze" Proclamation. The lower court's observation in the last part of its opinion that the testimony of American Petrofina should be obtained is, therefore, wholly without purpose or legal effect. In summary, the Court should have sustained the trial court's finding of overcharge during the freeze period, for the evidence clearly sustains the court's finding, and no useful purpose would be served in relitigating that which has_ already been _ properly determined. It is undisputed in this record that the freeze period overcharge was not, and could not have been discovered except through discovery pursuant to this litigation. The law does not require a meaningless, futile gesture, (presuit notification) and certainly does not require an act which would have been impossible, as in the present 42 situation. Therefore, even disregarding the question of willfulness, no presuit notification was necessary, and the trial court's finding of the freeze price overcharge should have been sustained. The finding of willfulness also should have been sustained for the facts compel a finding of willfulmess under any construction of the term and there is no need for reversal simply because the trial court did not find the amount of Petitioners' individual purchases or individual overcharges in any sum certain. The record clearly demonstrates the total overcharge as to all Petitioners, and the reSpective amounts of their purchases (with the exception of J. C. Bell, who failed to prove his purchases and therefore was not included in the overcharge calculation). It requires simply a mechanical calculation to determine the respective share of the damages attributable to each Petitioner. This certainly is not a basis for requiring a new trial of the "freeze" overcharge. The opinion of the lower court clearly should be reversed on this issue. a The trial court correctly determined that Respondents overcharged 43 Petitioners under pricing regulations which followed the "freeze" order. (a) Failure to make an effort to follow the pricing regulations constitutes a legal wrong. After August 19, 1973, refiners were required to determine their pricing pursuant to a formula specified in 212.83(c)(2) of 10 C.F.R. Chapter II, and its predecessor Part 150.355. Through the application of the formula a refiner is permitted to determine the increment per unit, (i.e., the amount per gallon) of increased cost per particular product (gasoline, diesel, etc.) accruing after May 15, 1973, and add such increment ot the base price of the product, i.e., the respective prices charged to each class of customers for the particular product as of May 15, 1973. The resulting price is the price for the particular product to the repsective class of customer for the "current month", i.e., the month for which the price is established. Section 212.82(a) provides that a refiner may not charge to any class of purchaser a price in excess of the base price except to the a extent permitted pursuant to the provisions of Paragraphs (c) through (k), the reference being to the pricing formula and rules relating thereto. Section 212.82(f) says that the base price is the weighted average price at which the item was lawfully priced in transactions with the class of purchaser concerned, on May 15, 1973, plus increased product cost incurred between the month of measurement and the month of May, 1973, and measured pursuant to the provisions of Sec. 212.83 (which contains the formula for allocating increased cost and determining the increment of increased cost which may be lawfully added to the May 15, 1973 base price). Section 212.82(f) also provides: "In computing the base price, a firm may not’ exclude any temporary special sale, deal, or 7 in effect on May 15, 1973. Section 212.82(f)(2)(i) provides in pertinent part: "In computing base prices for special products, a refiner may not increase its May 15, 1973 selling price to each class of purchaser more than once in any calendar month to reflect the increased product cost allowable pursuant to the provisions of 45 Sec. 212.83 the adjustment apeceee in Paragraph (f)(2)(ii) of this section or the incentive factor permitted pursuant to Sec. 212.84 but may implement the increase on any day during that month." Section 212.83(c)(1)(i) provides: "Special products: [gasoline and diesel fuel are included in the definition of special products] In computing base prices for sales of special product, a refiner may increase its May 15, 1973 selling prices to each class of purchaser once each calendar month, beginning with November, 1973, by an amount to reflect the increased product cost attributable to sales of that special roduct, using the differential between the month of measurement and the month of May, 1973, provided that the amount of increased cost used in computing a base price is calculated by use of the general ey ay 1) - of ths ~pection - r (Emphasis supplied). ~ The intent of the pricing regulations is to hold prices to the May 15, 1973 level adjusted on a month to month basis (not more than once each month) to allow the "pass through" of permissible increased cost to be determined in accordance with the 46 formula. The formula is simply a method by which the refiner determines an increment to be added to the May 15, 1973 base price which will allow him to recover his additional crude cost incurred in prior months. An increase over the May 15, 1973 price is permissible only through application of the formula. The wording of the regulation clearly mandates that no increase is to be permitted if the formula is not used. Since the Respondents made no bona fide effort to follow the formula during the overcharge period (as illustrated by discussion of the evidence, infra) the entire amount charged in excess of base price is “overcharge”. The trial court leniently allowed the overcharges to be decreased by proper calculation of the formula. But despite the clear wording of the regulations, the lower court stated that the failure of a defendant to perform the mechanical calculations under the formula in arriving at the price charged for covered products does not in and of itself result in an overcharge. The literal application of this proposition will provide additional comfort to violators. The statement is true only where the base price is charged. Section 212.82(a) provides that a refiner may not 47 charge any class of purchaser a price in excess of the base price except to the extent permitted pursuant to the provisions of Paragraphs (c) through (k), the reference being to the pricing formula and rules relating thereto. The same provision was found in Section 150.355(b) as amended in 39 F.R. 809 (January 3, 1974). The meaning is Clear, i.e., that in order to justify an increase over base price, the defendant must make a bona fide good faith effort to determine allowable increased cost pursuant to the formula. It has not been suggested that a defendant must be held to be the insurer of the accuracy of his calculations, but there is no authority, and no excuse for deliberately ignoring, (or manipu- lating) the formula (as Respondents have done). {f, as the lower court holds, a defendant may ignore the formula, though he knows he is supposed to calculate prices in accord with it, and be given the benefit of a "no legal wrong" finding in the fortuitous event that the price charged does not exceed that which is permitted, then it is only logical that he must accept the danger that the price will exceed the maximum permissible and, since he willfully ignored the formula, be held to have willfully affixed an 48 improper price. The lower court's opinion is to the contrary, for it holds that the overcharge is willful only where the seller knows his price is in excess of the permissible ceiling price. Thus, the would-be violators are given the best of all possible worlds, while buyers must suffer from an illogical and inconsistent opinion. (b) The trial court correctly ruled that Respondents are not entitled to consolidate operations for pricing purposes. When Mr. Sanders, the certified public accountant retained by Petitioners, first endeavored to ascertain the validity of the Respondents' pricing, he visited the offices of Crystal Oil Company in Shreveport. (R. 15) He was introduced to Mr. Leeseman, who was identified as Manager of Refining for Crystal Oil Company. Mr. Sanders asked to see _ the calculations that Crystal had made in order to determine the price under Phase IV regulations. Mr. Sanders then gave this testimony (R. 16): "Q What was Mr. Leeseman's response? 49 A Said he didn't have any. Q Did he say whether or not they had followed or reviewed the formula that was applicable at that time for pricing? A He said he had read it but didn't understand it and made no attempt to apply It. Q_ Did he give you any explanation as to how the prices that were in effect at that time or the price changes that had occured came about? A Yes. He said that Mr. Morgan supplied him a figure which he said would be the price of crude in that month or his estimate of the price of crude in that month, and they divided that by 42, and that's what they added to the price. Q_ Was that ge well the extent of the conversation that you had with Mr. Leeseman about what had been done at that particular point in time? A Yes. He gave me a sheet, showed me how he had arrived at the price he had arrived at, and then we went to Longview." (Emphasis supplied). The sheet referred to appears at Page 4 of P.Ex. 6. The sheet shows” an effective price schedule at various dates, and three price increases occurring during the month 90 of December (1973). None of these prices were, or could have been, arrived at through application of the formula contained in the pricing regulations, as is made abundantly clear by the record. The testimony concerning Mr. Leeseman's representations relating to the failure to follow the formula was not disputed or denied by the Respondents. Mr. Donald Burns, accountant for the Respondents, also testified with relation to Respondents’ actions in regard to pricing. He stated that after consultation with Mr. Houghton, one of the attorneys for the Respondents, "We determined that we could legally - scratch that - we determined that a consolidated basis was the proper basis to perform the calculations." (R. 482) However, though this determination was made around March, the consolidated basis was not actually used until July or August. (R. 482) Mr. Burns conceded that it was required that the formula be used to make changes from the May 15, 1973 base price. (R. 527). It is clear from cross examination, however, that the formula was never used by Respondents to establish prices. Prices for December 1973 and January 1974 were established through Mr. Leeseman's' method, _ already described. (R. 527) Mr. Burns then determined that the formula had not been applied "properly," and stated "the first time I applied the formula as I determined it was for February." (R. 528) At that time, however, the formula calculations were made by Mr. Burns individually for each subsidiary (e.g., individually for each subsidiary (e.g., individually for Longview Refining Company), as opposed to being made on a consolidated basis. (R. 528). And though, as noted earlier, Mr. Burns and Mr. Houghton determined that Crystal could "legally" determine the formulz a consolidated basis as of March, the consoliaeted basis was not actually used in calculations until July or August. No explanation appears in the record as to what, if any, calculations were used in March, April, May or June. Even though Mr. Burns purported to make individual calculations in February, he did not take into account the admittedly large accumulated overcharge. Witness the following testimony: (R. 539, et. seq.) 92 "Q I would like to read then to you the first re of that letter (from Tom Houghton, attorney for Respondents, to the Federal Energy Office, dated March 8, 1974.). It says "Longview Refining Company of Longview, Texas, a _ wholly-owned subsidiary of our client Crystal Oil Company, of Shreveport, Louisiana, during the months of December 1973 and January 1974 incurred overcharges to wholesale purchasers of gasoline and diesel fuel as a result of overestimates of the cost of crude to be run durin those months. The exact amount o aggregate ee during the eriod has not yet been determined, ecause final billings by crude suppliers have not been received. However, it seems likely that amount will be quite substantial.’ All right, did you make those ~ealculations to show what that overcharge wag? I made those calculations—based on incorrect assumptions. Ard that incorrect assumption being that you should apply the formula on the basis of Longview’ Refining Company individually. That is one of them, yes. That's just one of them. What---? That's the major. We changed several interpretations as we went along. 93 Oo F- AD LY To eliminate the overcharge? No, because of a different interpretation of the formula. Now, how much was the overcharge as you calculated it to be, regardless of whether on incorrect assumptions or not, Mr. Burns. At what point in time? Sir? At what point in time? pe a the time of this letter, March 8, I don't recall. It was probably in the neighborhood of ive undred thousand. That was just for gasoline, wasn't it? The five hundred thousand or so? I believe so, yes, gasoline. Another hundred thousand or so for diesel, wasn't it? That's correct. About six hundred ninety-two thousand altogether according to your calculations at that time, wasn't it, Mr. Burns? 24 It might have been. I don't know exactly. Do you recall this language in the same letter that appears on the second page, the third paragraph of the leter, In view of this threat and in order to avoid exposure to double recoupment, Longview both has refused to make refund to any party for the December and January overcharges and _ is presently determining its price under the formula so that the amount of overcharges for those months will not \ be recoupled in future months pendin official investigation by the Federa Energy Office. Do you remember that? Yes. So that in your future calculations as they applied to Longview Refining Company you did not take into account the G factor represented by this ee $692,000 in overcharges, you? I took in the G factor that occurred after January 31. The portion of the G factor that occured prior to January 31 I excluded. And that would _ include _ the approximately $692 ,000.00 in overcharges? vi vu) - A If that was a correct figure. If that's a correct figure? A Yes. or.” Further compounding and complicating this picture were Mr. Burns' admissions that though he has made numerous calculations on one basis or the other, from and after February, 1974, none of such calculations can be tied to any price increase or any price charged by Longview Refining. Witness the following testimony: (R. 927, et. seq.) "Q@ All right. To get this amended base price--in other words, to make your change from May 15, 1973, you are required to use the formula, aren't you: A That is correct. When did Longview Refining Company or Crystal ever first start using the formula on any basis? A The first that I am aware of is December. There may have been one before that. 36 December, 1973? That is correct. Sir, didn't you join the company in December of 1973? December 26. And didn't you for a month or more work and try to find out what had been done and then try to set up the company on the formula? That's right. And wasn't it, in fact, the first of February before you ever got the formula in application? No sir. Isn't that what you told us heretofore, Mr. Burns, Mr. Sanders and I? No. As a matter of fact, what I told Mr. Sanders and you is that they did not apply the formula propery and that the first time I applied the formula as I determined it was for February. When you did that, when you first applied it for February, you did it on the basis of Longview’ Refinin Company as a _ separate individua entity, did you not? o7 That's correct. And you were doing the same for Adobe and Berry and the Other refining subsidiaries. At the time it was just Adobe and Berry. Crystal Princeton was not in operation at that time. So you couldn't even have consolidated Crystal Princeton at that time, could you? No... All right, sir. Would you now tell me then for the record what supporting documents or data do you have showing how the price here shown to be in effect on December lst, 1973, was arrived at? I have nothing. The second price that shows to be effective on December lst which was retroactive from December 4, 1973, what do you have to show how that price was arrived at? I believe ~~ alread have Mr. Leeseman's calculations of that price. 98 The sheet that Mr. Sanders identified in one of his exhibits? That's correct. You have seen that sheet, have you not? I have. It does not in any way, shape, form or fashion purport to apply the formula does it sir? It purports to apply the formula as Mr. Leesemen interpreted it at that time.... aa? erat Now show me what you have then to support the price that was first notified to be effective December 20, 1973, and then on December 3lst, 1973, deferred to January lst, 1974. I was not involved in that price increase, and we could not locate any documents for it, but Mr. Leeseman, I[ understand, prepared those calculations, and he’s no longer with the company . And you are unable to locate any supporting entries to show that the formula was applied? 6 The reference is to the sheet identified by . Sanders, which had no relation whatever to the formula, a fact admitted by Mr. Leeseman. 99 O » AD YF ee On any basis, whether consolidated or individual or any basis? . I do not know that it did not exist. What do you have then to < - the price increase of January 3rd, 1974, which was noticed on January 2nd, 1974? What supporting documents do you have to show application of the formula for that price increase? Once again, I was not involved with that price increase. Do you have anything? Do you know of anything? No, I don't know of anything. Have you ever seen anything? I may have. I don't recall. What do you have then to support the price increase of February 5th, 1974? I could not find that in the records in my calculations. This is a price ecrease, and it was done -- € calculations for it were done in Houston by Tom Houghton and myself. T could not locate them. THE COURT: How do you spell that last name? 60 THE WITNESS: H-o-u-g-h-t-o-n. THE COURT: Oh, Mr. Houghton here? THE WITNESS: That's Mr. Houghton in the courtroom. You and Mr. Houghton did that, but you can't find the backup to show what was done or how it was done? No, I have stacks and stacks of files, but [ couldn't find it, no, sir. What do you have to support the price increase as of March 9, 1974? I would like to make one thing clear at this point. [I did not set the price. I merely advised on them. Do you have anything to. show, though, what calculations were done, how the formula was applied ---? I have quite a few stacks of work papers, yes, sir. They will not tie airectly to this, because I did not set e prices. Are you referring now to _ those computer runs that you showed us? Not for the March 9th, no, sir. Were there any computer runs for the March 9th price increase? 61 5D 2» © PF No. You say you have some work papers relating to the March 9th _ price increase, but they will not tie to the price increase. Is that correct? That is correct... Goin to the price increase of April 15, 1974, what supporting documents or data do you have to show the application of the formula to arrive at that price? I have a whole file full of work papers Supporting each of these calculations. Well, sir, do you have one that shows the April 15, '74 price? My calculations will not tie to those prices. You have some work papers but they will not tie to the prices? Tnat's correct. Because you did not set the prices? That is correct. All right, sir. Do you know who else has any work papers that would support that and show application of the formula to arrive at that price? 62 O » © PY No, sir, the prices were set as a result of oral conversations, and they were not done on a Calculated basis -- scratch that -- they were done on the basis of my Calculations. I made estimates in my Calculations. These estimates were adjusted. Who adjusted them? Mr. Morgan. Mr. Morgan’ didn't necessarily, though, go by the figures that you may have arrived at through your calculations and your endeavors to apply the formula, did he? He went by my calculations, adjusting the wrong assumptions that I made. He took them and adjusted your agree and ee at some price. Those prices will not tle to your calculations’ ea That's correct. Is that the sum and substance of it? That is. Is that true then for that next price, May 4th? Yes, it is. I believe that starts with computer runs. I believe my computer runs go to that. 63 Q The few computer runs which you showed us, in addition to Mr. Leeseman's sheet as being a backup, didn't start until May then, 1974. Is that correct? A I believe I have before then, but May is the first ones I could locate. I'm not certain as to what day they started. Q Well, would this same process remain true right up to this good day, Mr. Burns, for setting prices? A Except that we're doin it consolidated, yes" (Emphasis Supplied). In summary, Mr. Burns testified that when he joined Crystal Oil Company on December 26, 1973, he determined that the formula had not been applied properly (by Mr. Lesseman). Mr. Burns first made calculations for the month of February, 1974, for Longview Refining Company as a separate entity. There was a large overcharge (in excess of $600,000.00) which he disregarded. These calculations were subsequently abrogated by calculations on a "consolidated" basis commencing in July or August, 1974, which purported to wipe out the overcharge. Compounding this tale of knowing 64 disregard and manipulation of the regulations is the unabashed testimony that no calculations known to exist will tie to any price set by Respondents during the pertinent peries, not even these calculations required to be filed with the Federal Energy Office. This is because Mr. Morgan, president of Crystal, would correct Mr. Burns' "assumptions" and set the price at some figure which would not tie to the calculations. The only prices ever charged by Respondents after the inception of the regulations which were tied to any supporting documents are those shown on Page 4 of P.Ex. 6, being Mr. Leeseman's price figures which were admitted by Mr. Leeseman as having no relation to the formula. The "consolidated" approach to the formula was first employed in July or August, well after the overcharge period, but is used to "eliminate" the overcharge. There is no explanation of the method of setting prices in the interim period between February and July or August. The overcharge-eliminating consolidated prices still does not tie to formula calculations because prices have been left to Ue ultimate determination and control of Mr. Morgan. 65 The entities, i.e., subsidiaries of Crystal Oil Company, consolidated for price calculation purpose are Longview’ Refining Company, Berry Refining Company, Adobe Refining Company, Crystal Princeton Refining Company, High Octane Terminal Company, Crystal Petroleum Company, Tulsa Oil Company, and Stone Independent Disbributors. (R. 483). Longview, Berry, Adobe, and Crystal Princeton are refiners. High octane, a blending company, was also considered a refiner. The remaining companies-Crystal Petroleum, Tulsa, and Stone-- are retailers. All other subsidiaries of Crystal Oil Company were ignored in the consolidation, as was Crystal Oil Company, the parent. (Crystal Oil Company is engaged in production, supply and distribution. It does not operate gasoline stations, and is not engaged in refining.) (R. 525) Through the _ consolidation, the Respondents took costs applicable to all consolidated companies back to August, 1973, averaged such costs, arrived at an allocation factor, and apportioned costs between all the companies. (R. 547) The incongruity of this approach is illustrated by the fact that Longview 66 Refining Company was not owned by Crystal Oil Company on August 1, 1973, not being acquired until November 1, 1973. (R. 547). Adobe Refining Company also was acquired after August, i.e., om November 30, 1973. The financial statement of Crystal Oil Company shows that Crystal-Princeton was acquired on December 14, 1973, but did not begin refining operations until July, 1974, well after the overcharge period. (R. 548) Therefore, three refineries packaged in the consolidation were acquired by Crystal Oil Company well after the pricing regulations went into effect, and after overcharges had been incurred, and one was not in operation until after all overcharges during the pertinent period. "Refiner" is defined as a "firm" other than a reseller or retailer. Sec. 212.31. A "firm" may be treated by the F.E.O. as a parent and consolidated entities, or a parent and a consolidated or unconsolidated entity, or an unconsolidated entity, or “any part of a firm." Sec. 212.31. In this overcharge case, the court, of course, exercised the same power and function as the F.E.0O., and was certainly justified on the facts and circumstances described above, in treating Longview Refining as an “unconsolidated entity" and"part" of a firm as a separate firm for pricing purposes. (The consolidation of the retail subsidiaries is examined in more detail in the next section of this petition). The lower court ignored the power of the trial court to determine that the consolidated calculations were improper, and the abundant evidence supporting that decision, and held that consolidation must be employed. But the trial court is left without direction, in the event that the decision to test the overcharge on a "consolidated" basis is maintained. The opinion states that the refiners were not consolidated to the extent "permissible" by the trial court, and that facts regarding acquisition and operation of the various companies must be taken into account in calculating Respondents' ceiling price on a consolidated basis. The lower court does not state the extent to which consolidation is permissible, nor does it state what facts regarding acquisition and operation of the various companies must be taken into account, or how those facts will affect consolidation. Based on the trial court's finding that the Respondents totally failed to follow the formula, as the regulations require, all charges in excess of May 15, 1973, base price are overcharges. Accordingly, Petitioners should be entitled to recover these charges in excess of the May 15, 1973 base price on all sales to Petitioners through the period ending February 27, 1974 (being the period covered by the Petitioners’ proof). The trial court declined to award this amount, but, instead, based its award on calculations made by Mr. Sanders which applied the formula to Longview Refining's operations. It is obvious that the overcharge is willful. Respondents did not attempt to consistently follow and apply the formula, with which they were thoroughly familiar. Instead they vacillated for the sole purpose of avoiding the effect of their exorbitant overcharges, and set prices which were not determined by the formula on any basis, consolidated or unconsolidated. Any request for refund on the part of the Petitioners would obviously have been ignored by Respondents. This is apparent from the Respondents' efforts to manipulate the formula so as to avoid repayment of the overcharges, and their persistence in the 69 position that nothing is due the Petitioners. Accordingly, the trial court was correct in holding that the violation was willful, and that application for refund was not necessary. (c) The lower court was in error in holdin that “reseller™ has two different definitions, one of which is be ignored, while the other requires consolidation of retail subsidiaries in determining a refiner’s price. - The pivotal consideration in Respondents’ asserted basis for including the retail subsidiaries in the consolidation was their failure to meet the definition of "reseller" in subpart F of Sec. 212.91, a position which the lower court adopted. "Refiner" is defined in Section 212.31 as "a firm (other than a reseller or retailer) or that part of such firm which refines cuvered products of blends and substantially changes covered products or refines liquid hydrocarbons from oil and gas field gases, or recovers liquified petroleum gases incident to petroleum refining and sells those products to resellers, retailers, reseller-retailer?, or ultimate consumers. "Refiner" includes any owner of _ covered products which contracts to have those covered 70 products refined and then sells the refined covered products to resellers, retailers, reseller- retailers, or ultimate consumers." The definition of "firm" contained in Sec. 212.31 is as follows: "Firm' means any association, company, corporation,’ estate, individual, joint venture, partnership, or sole proprietorship or any other entity, however organized, including charitable, educational, or other eleemosyna institutions, and the federa government, including corporations, departments, federal agencies, and _ other instrumentalities, and state and local governments. The F.E.O. may, in regulations and forms issued in this part, treat as a firm: (1) a parent and a consolidated and unconsolidated entities (if any) whicn it directly or indirectly controls, (2) parent and its consolidated entities, (3) an unconsolidated entity or (4) any part of a firm." It is therefore clear that any "part" of a firm may be treated separately for pricing purposes, and this includes separately incorporated subsidiaries wholly-owned by a holding company. It is equally clear that it is the intent of the regulations, as evidenced by the definition of 71 "refiner" as a firm other than a reseller or retailer, to consider refiners separately for pricing purposes. Subpart F of the regulations sets forth the pricing rules regarding resellers and retailers, and the separate treatment accorded them leads to a preliminary conclusion that the consolidation of the retail operations attempted by Respondents is not proper. Section 212.91, Subpart F, on which both the lower court and Respondents relied for the consolidation of the retailers provides: "This subpart applies to each sale of a covered product (other than the first sale of crude petroleum) by resellers, reseller-retailers, and to each sale of crude petroleum (other than the first sale) by a refiner. For purposes of this subpart 'reseller' includes any entity of a refiner which is engaged in the business of purchasing and reselling covered products, provided that the entity does not purchase more than five percent of such covered products from the refiner including any entities which it directly or indirectly controls, and _ provided further that the entity has historically and consistently exercised the exclusive price authority with respect to sales by the entity." 72 "Reseller" is also defined in Sec. 212.31 as "a firm (other than a refiner or retailer) or that part of such a firm which carries on the trade or business of purchasing covered products, and reselling them without substantially changing their form to purchasers other than ultimate consumers." The same section defines "reseller-retailer" as "a firm (other than a refiner) or that part of such a firm which carries on the functions of both a reseller and retailer." "Retailer" is defined in Sec. 212.31 as "a firm (other than a refiner or reseller) or that part of such a firm which carries on the trade of business of purchasing covered products and reselling them to ultimate consumers without substantially changing their form." It is clear from these definitions that "reseller" refers to those performing middleman functions (e.g., jobbers), i.e., those who buy from refiners and resell to purchasers other than ultimate consumers. Sec. 212.91 allows the F.E.O. to treat certain subsidiaries performing as jobbers as part of the parent refiners. This has no application to the present case. 73 Subpart F lays down pricing rules applicable to resellers, reseller-retailers and retailers which are entirely separate from those applicable to refiners. Sec. 212.91 says that for purposes of pricing under Subpart F, the term "reseller" includes any entity of a refiner which (1) purchases less than five percent of its covered products from the refiner or its controlled entities, and (2) historically and consistently exercises exclusive price authority with respect to its sales. If the reseller does not meet these two requirements, presumably (for it is not expressly stated) the reseller entity will be considered part of the refiner for pricing purposes. But this provides no authority whatever for determining the prices of a retailer under the rules in Subpart E, applicable to refiners, rather than under Subpart F, applicable to retailérs. The case at hand deals only with retailers, not resellers. Had those who drafted the regulations intended the exclusionary provision to apply to retailers, or even reseller- retailers, they certainly would have said so. There is no reason, logic, or authority for holding that the term "reseller" in Sec. 212.91 has no relation to the definition of reseller 74 contained in Sec. 212.31. (which contains the general definitions applicable to the regulations). Nor is there any basis for broadening the term reseller, as used in the exclusion in Sec. 212.91 to include retailers, where "retailer" has an entirely different definition. Crystal Petroleum Company, Tulsa Oil Corporation, and Stone's Independent Oil Distributors, Incorporated, the non-refiner companies with which Respondents consolidated all refining operations, are all retailers. (R. 549 and Crystal Oil Company Annual Report, 1973). The record fails to reveal any basis for treating them as "resellers," i.e., firms which purchase covered products and resell them _ without substantially changing their form to purchasers other than ultimate consumers. But the record (e.g., Mr. Burns' reference to them as "retailers") and public disclosure, i.e., the annual reports by Crystal Oil Company, show that the named subsidiaries are retailers. Witness the following excerpts from the 1973 Annual Report relating to retail operations: 79 "CRYSTAL PETROLEUM COMPANY "During the past year’ Crystal Petroleum Company moved to develop its profit potential. Improvements were made in financial management with tight control on _ receivables and payables. Changes in the method of transmitting funds from stations to our central banks have greatly expedited the flow of cash available for operations. A_ detailed study was completed on unprofitable stations and a systematic, organized program was instituted to shut down and lease the most unprofitable ones. Some of these Stations may be reopened by the Company in the future. The operatin personnel has been reduced an efficiency improved. The retail market improved steadily through the last six months of the year, however, costs for roduct increased in this area at a aster rate than could be absorbed at the retail level. The product suppl situation has improved and Crysta Petroleum is not having the difficulties experienced by many independents in keeping the stations supplied with gasoline. With the shutdown of these unprofitable stations, stable market conditions, and improved management, Crystal Petroleum should improve its profit position in 1974. "JOE E. HUTCHISON DISTRIBUTING COMPANY 76 "The management of Joe E. Hutchison Distributing Company was consolidated with Crystal Petroleum Company on September 1, 1973. This consolidation places all retail operation in the southeastern United States (excludin Stone Oil) under one retal management. These changes enabled the personnel at Hi-Octane Terminal to give more attention to the acquisition and blending of product, not only for our retail outlets, but also for our wholesale customers. "TULSA OIL CORPORATION "Because of the energy crisis, it was decided that no new locations were required by Tulsa during 1973. Tulsa concentrated on increasing productivity per existing unit; this 1973 increase was 11.3 percent per unit over 1972. In 1973 net profit margins at retail improved over 1972 and per gallon unit operating costs were reduced by 21%. Tulsa has been in a strong retail gasoline marketing area whereby they could sell at the maximum ceiling prices allowed most of the year. Under its excellent management Tulsa continues’ to contribute substantially to Company earnings. "STONE'S IND® PENDENT OIL DISTRIBUTORS, INC. "Stone's Companies had a_ good operational year in 1973 with earnings 77 in its normal range. Even with occasionally restricted volumes of product, Stone was able to operate on a profitable basis approximately equal to previous years. Our operations were temporarily taxed during the month of August 1973 when our main asoline supplier discontinued eliveries. During the interval that exchange negotiations were being settled, our ability to supply even minimum amounts to our customers was, at times, in uestion. We marketed a low volume for that month of less than 2,000,000 gallons of all products, which was down from a volume of slightly over with a great deal of aid from exchange .agreements and from Hi-Octane Terminal Company, another of our subsidiaries, we were able to build back to an average monthly volume in excess of 3,000, gallons. With the impetus of the energy crisis in ful! swing, our retail market once again reached profitable levels commensurate with effort and investment involved. Those stations which failed to react in this market were temporarily closed on the basis that products could be more profitably placed at other locations at this time. Our wholesale operation was stifled in the latter part of the year by a supply imbalance at certain terminal locations. This, coupled with resulting terminal —— and scheduled drawing down of available products, did not ailow us to operate our transports as efficiently as in the past. While the cost was 78 recaptured in most cases, this loss in me undoubiedly took its toll in profit which we would have ordinarily realized. "With the mandatory controls for etroleum products,. rise in cost, ederal regulations of pricing, and shortages in the marketplace, the rojection of results is. difficult; Oowever, we are Optimistic that Stone Companies will contribute to the earnings of the Company." Accordingly, the exclusion in Section 212.91, is not a definition at all, but simply a rule to determine whether reseller operations controlled by refiners will be priced under Subpart E "Refiners," or Subpart F, "Resellers and Retailers," and has no application here. It is clear that the retail distribution arms of Crystal Oil Company qualify as "retailers" and their pricing is governed by Subpart F. It would not even matter if retail distribution subsidiaries qualified as "resellers-retailers" for the evidence purpose of the exclusion in 212.91 was to determine whether the middleman function should properly be placed with the refiner or the retailer for pricing purposes. 79 It is thus apparent that the Respondents are not entitled to consolidate retailers with refiners for pricing purposes. The lower court held that the "definition" contained in 10 C.F.R. Sec. 212.91 is solely for the purposes of Subpart F, Resellers and Retailers, yet relied upon it in defining "refiner" under Subpart E, to the exclusion of the general definition by which the Act is supposed to be interpreted (in Sec. 212.31, Subpart B). In doing so, the court relied upon certain FEA determinations which do not support the result reached. Esso Standard Oil S.A. Ltd., Exxon Corporation, New York, New York (Case No. FEA 20,300, Energy Management 1974 Transfer Binder), held that Esso Standard S.A. Ltd. (Essosa) and Exxon Corporation (Exxon) should be consolidated for price determination purposes. However, this was done pursuant to "price regulations in Puerto Rico," 39 F.R. 17764, May 20, 1974, which have no application to the present case. Further, there is no discussion in the opinion regarding the proper definition of reseller, and no indication that Essosa would not qualify as a reseller under the 80 definitions contained in Sec. 212.31 and the exclusionary provision in Sec. 212.91. The FEA Decision in Esso Standard Oil S.A. Ltd., Coral Gables, Florida (Case No. FEE- 1025, Filed 7-30-74, decided 12-20-74) Paragraph 20,748, page 20,963, Energy Management, 1974, Transfer Binder, concluded that Essosa of the Virgin Islands should be consolidated with Exxon for pricing purposes but, here again, there is no indication that Essosa did not qualify as a reseller under the definitions of Sec. 212.31. In fact, there is no discussion of the point. The fact that Essosa may have been referred to as a "marketer" in the Virgin Islands is of no consequence, for a reseller is exactly that, i.e., a "marketer." But a reseller is not a retailer, and there is no indication that Essosa is a retailer as opposed to being a reseller or a reseller-retailer. The case of Esso Eastern Incorporated Houston, Texas, Case No. FEE-0915, filed 6-14- 74, decided 12-23-74, held that Esso Eastern's Guam branch did not meet the criteria set out in Sec. 212.91 and therefore could not be considered a reseller for the purpose of mandatory petroleum price regulations. There is 81 no indication that Esso Eastern did not meet the definition of reseller contained in 212.31, and certainly there is no indication that it qualified as a retailer. Therefore, the FEA opinion does not furnish support for the lower court's conclusion. The case of Getty Oil Company (Eastern Operation), Inc., Skelly Oil Company, New York, New York (Case No. FEE-1101), Paragraph 83,041, page 83,106, Energy Management, 1975 Decisions and Orders, is subject to the same observations. In fact, it clearly appears that both Getty and Skelly met the definition of refiners, yet because of their historical independent operation, the FEA granted an exception and did not require their consolidation. The same considerations apply in the present case, and _ militate against consolidation. Even those companiesqualifying as refiners have historically and traditionally been operated as separate, independent entities. In fact, Crystal Oil Company only acquired and/or commenced operation of several of them during or after the period of overcharge, so Crystal serves simply as a holding company. 82 The trial court was faced with contrary positions, i.e., the Petitioners contended that Longview Refining's overcharge should be determined on the basis of separate calculations applicable to Longview Refining, and _ the Respondents contended that Longview should be consolidated with various other entities whose only relation to Longview, except for isolated intercompany transfers, was the fact of common ownership (which post-dated the origination of the pricing regulations). The Petitioners had notice of the attempt to consolidate the calculations only a short time before trial, and had no reasonable opportunity to test the attempted consolidation. The trial court quite properly and with adequate justification chose to measure the overcharge on an unconsolidated basis. This determination should have been upheld. It is admitted that the Respondent Longview Refining Company made a substantial overcharge, when considered on an unconsolidated basis (R. 562): "Q All right, let me rephrase the question then. If your theory in this case that there should be a_ consolidated approach to the application of the formula is not accepted, and it is 83 determined that you've got to figure it on an individual basis, the fact is, sir, that there is a very substantial overcharge under the formula. Is that not correct, sir? A That's correct." (Testimony of Mr. Burns). The overcharge was aiso_ publicly admitted in a letter by Respondents' attorneys to the F.E.O. which appears in the Record. Mr. Burns testified that he made calculations on which the letter was based, though he said such were based on "incorrect assumptions," the primary one being that the calculations should not be consolidated. In reasonable probability (though it is not known for certain) consolidation of only the refining operations will not diminish the overcharge. Only by including the retail companies was the effect of the disregard of the pricing regulations alleviated. It is submitted that the regulations do not permit this sort of gerrymandered result. The trial court's determination that consolidation is not proper should be upheld. 84 (d) The trial court made a roper determination of "classes" and “base price” for purposes 2 EEE of the pricing formula. When Mr. Sanders, Petitioners’ C.P.A., first visited Longview’ Refining Company, he was furnished a sheet purporting to show transactions on May 15, 1973, supporting the calculation of base price as of May 15, 1973, supporting the calculation of base price as of May 15, 1973 (being an average price of .1525 cents per gallon for regular gasoline and .1725 cents per gallon for premium gasoline). (R. 18) Mr. Sanders subsequently found that Thriftyman, Incorporated, one of the Petitioners, had a transaction on May 15, 1973, which was not listed on the sheet furnished by Longview Refining Company. When he called for additional information, the request was handled through Respondents' lawyers. (R. 19) The response to Mr. Sanders' request for information relating to calculation of base price is contained in a letter dated February 8, 1974, appearing at page 5, et. seq. of P. Ex. 4. The explanation given for the apparent discrepancy noted by Mr. Sanders is as follows: 85 "1, List (Exhibit A) of all transactions for the sale of asoline which occurred on ay 15, 1973, at the refinery of Longview Refinin Company (Longview). You will note that this list is in two parts. Part A includes all gasoline sales to customers of the class in which the Plaintiffs in the captioned receeane belong. Part B ncludes all gasoline sales to Other customers. On May 15, 1973, the customers listed in Part B constituted a distinct class separate from the class of customers in Part A as a result of the distinction in the terms of delivery to customers in Part B as opposed to customers in Part A. ustomers in Part B had agreed from time to time to pick up —- when requested b ongview; such requests woul be made when necessary as the result of inadequate refinery storage capacity. Customers in Part A had made no. similar commitment to ee: Shortly after May 15, 1973, lack of inventory storage capacity ceased to be a_ problem, and_ the distinctive arrangements with the customers listed in Part B were terminated, Thereafter such customers have been members of the class including the customers listed in Part A--that is, Longview has since June had only one class of gasoline purchasers." 86 The companies listed as being in the "distinctive" class were Allied, M&A, Thriftyman, and Sun oil.’ = The evidence is contrary to the assertions in the letter. When Mr. French Peterson, who was president of Longview Refining on May 15, 1973, was questioned about these statements, the following testimony was given. "Q Mr. Peterson, you did not have any special deal with Thriftyman that riftyman would pick 5: gasoline when requested to do so by you or ae Refining Company, did you, sir A No, Thrlfyman as | said, was made (sic), ecalse Mr. Blackman approached me and said he would brin a volume in if T could” furnish the Volume and guarantee to furnish it to him for a period, and we talked about it~ and determined to negotiate a six- months eriod for approximately 400,000 a month. It Would vary. q In response to a question as to whether Respondents calculated a different "class" (Base price) for M & A, or Foremost, or Allied or any combination of these companies, Mr. Burns said that no sales were made "to that class of urchaser" after August, 1972, or after "the nception of the formula". (R. 569). 87 As | understand it, sir, you did not have a deal either with Sun or Allied or Humble or the Alkek Companies Foremost and M & A, that they would just come = and pick up gasoline whenever Longview Refining Company wanted them to. That was not the basis of your---? Not with Sun or Fira or Exxon, Was it your deal with Foremost and M& A that they would just come and pick it up when you wanted them to? Well, we tried to keep it on a consistent volume, but our history was such that if we needed to move some they would come in and pull more, and if we needed to move less, they could et the product elsewhere, because they were flexible on their supply. All right, sir. If somebody has said in connection with this case then that as to Allied, M & A, Thriftyman, and Sun Oil that these customers had agreed from time to time to pick up gasoline when requested by Longview, that would not be true with respect to anyone except possible M & A. Is that correct, out of those four? 88 A Primarily M & a8 They never -- hey were cut off sometimes for short eriods, as | explained, or sometimes hey would pull heavy. ae | were sort of a balance wheel to the refinery." This testimony was so contrary to the asserted basis for the different classifications of customers that one of the attorneys for the Respondents, Mr. Thomas W. Houghton, was forced to the stand to admit authorship of the letter ,of February 8th (which was over Mr. Paine's signature) and attempt an explanation as to its lack of accuracy. (R. 461, et. seq.) Mr. Clint Blackman, Jr., President of Thriftyman, testified that the price obtained by Thriftyman, Inc, was never set or determined on the basis that Thriftyman would pick up fuel from Longview Refining Company whenever Longview Refining Company requested, (R. 579). There is no apparent basis or justification for the difference in treatment of the customers making purchases on May 15th, once the 8 See Footnote 7. Since M & A made no purchases on May 15, 1973 its price was not part of the base price calculation, and = any ustification for putting it in a separate class is mmaterial, 89 explaination of the attorney's letter of February 8th, 1974, is negated. It is clear from reference to the record (R. 431-36, 457-58) and to Mr. Blackman's testimony that there was no "customary price differential" based on "different characteristics" of customer groupings. There is no evidence whatever of any special contractual relationship between Longview and any of the companies which made purchases on May 15, 1973, and which were excluded from Respondents’ base price calculations. In the final analysis, the only attempted justification of different "classing" related to Thriftyman (M & A made no purchases on May 15, 1973). But evidence directly contradicting the asserted justification came from both Mr. Peterson and Mr. Blackman, which demonstrates that all customers concerned in this inquiry possessed the same essential characteristics. Therefore, the proper base price is that which averages all transactions (including the transaction with Thriftyman and others listed on Page 7 of P.Ex. 4) as of May 15, 1973, and is the base price used in Mr. Sanders’ calculations. The trial court so _ found, (Findings of Fact, 25-28, page 9, App. D). 90 The Respondents’ position with respect to base price for formula pricing purposes is curiously inconsistent. They contended that Thriftyman's transactions on May 15, 1973 should not be included for purposes of determining the base price applicable to the other Petitioners, but, did not calculate charges separately for Thriftyman using a different base price. This is contrary to the regulations, which state that in computing the base price, a firm may not exclude any temporary special sale, deal, or allowance in effect on May 15, 1973. Sec. 212.82 (f) (I). Had Respondents separately calculated Thriftyman's base price, the ~ resulting overcharge to Thriftyman would have been much greater than the overcharge to other Petitioners. But, instead, Respondents simply excluded Thriftyman for base price calculation, then included it, along with all other Petitioners, for pricing purposes. The lower court said that the trial court should have made a specific determination of the dollar amount of May 15, 1973, weighted average price for each product involved as well as actual base price figures for sales to Petitioners "class" of purchasers and should have 91 made a more specific finding as to whether Petrofina and others claimed to be a class of purchasers separate from Petitioners were included in Petitioners' class. It is clear that the trial court made these determinations, and that the lower court is confused. The trial court specifically found the base price used by petitioners to be the weighted average price of all transactions on May 15, 1973, and to be the proper base price. It also found that there was only one class involved in the pricing to petitioners, which consisted of those companies listed on page 7 of P. Ex.4, which contains the base price calculation. There was more than adequate evidence on which to base the trial court's conclusions, and it is not clear if the lower court even disagrees with those findings. If it does, the opinion gives no guidance whatever with regard to the question of why the class determination was improper. Certainly, there in no indication that the evidence, which was fully developed on the point, required putting Thriftyman or any other purchaser which made a purchase on May 15, 1973, in a separate class and accorded a different base price. The Respondents similarily disregarded all lower 92 prices charged in transactions on May 15, (including Thriftyman's) in arriving at the base price for Petitioners. The lower court does not indicate any support for this manipulation, and all that can be safely assumed from the opinion is that a separate finding as to classes and base prices should he made with specific reference to, petitioners and those, which Respondents contend should be in _ separate classes. But this does not require re-trial, and the confusion in which the lower court has left the issue has created the risk of further appellate revision of any action that the trial court might take. (e) The lower court is incorrect in its holding that petitioners failed to take into account the refiners incentive factor and erred in calculating the overcharges by using the current month as the month of measurement. The amount of the overcharge is as set forth in P. Ex.6, through the month of February, 1974. It is correctly noted in the lower court's opinion that Petitioners corrected their figures twice during trial. This resulted from one basic’ mistake, i.e., incorrect application of a ratio factor. However, 93 Respondents have not pointed out any mathematical deficiency or error in the final corrected figures, nor has the lower court. But the lower court held that there are errors in the methodology of Mr. Sanders' application of the pricing formula, including: (1) failure to utilize the prior month as the month of measurement; and (2) failure to take into account the refiner's incentive factors. (1) Month of Measurement: The pricing formula is designed to allow recovery of increased product costs by adding an appropriate increment to the base price. See Mr. Sanders' explanation, R. 71, et seq. The formula determines an increment to be added to the May 15th price which allows the refiner to recover additional costs incurred in prior months. If it is properly applied, the formula will always find the refiner just one month behind in either overcharge or undercharge. The increment is determined by dividing unrecovered costs from the past month's operation (or such as may have accumulated in prior months) by the estimated volume of sales of the product during the "current" month. Since the current month is not completed, sales in that month can not be 94 known, hence the "estimate." This is the only "unknown" or "estimated" component to the formula. When Mr. Sanders’ made _. his calculations, it was not necessary for him to deal with an unknown. He was furnished all the figures (by Respondents) for the period he analyzed, i.e., through February, 1974. Since Plaintiffs' calculations cover the entire period for which the refund was claimed, rather than a month-to-month calculation of what the price should have been, the "month of measurement" calculation is not a consideration. See page 3 of P. Ex. 6, which sets forth Mr. Sanders’ explanation of the formula. Mr. Sanders applied the formula over the entire period, based on known figures. There was no reason to estimate, since he had all the figures applicable to the period for which he calculated the overcharge. When challenged as to this approach, Mr. Sanders stated (R. 165): "Well, when you go through a series - a formula is designed to be applied month to month. Now when you are calculating over a period of time in which no adjustment is ag ohne to be made on a monthly basis, it really doesn't make any difference." a | 95 There has been no logical challenge to this observation. Mr. Burns testified that when he made calculations for Longview, on an individual basis, his figures were "very close" to those of Mr. Sanders, which further serves to verify the validity of Mr. Sanders' approach to the problem. It has not been demonstrated that this approach reaches an incorrect result. It is obvious that this observation by the lower court is of no consequence. (2) Refiners' Incentive Factor: The refiners' incentive factor was not included in Petitioners’ calculations because there was never any indication (until Respondents’ calculations were furnished shortly before trial) that it should be. Respondents' letter of February 8, 1974 indicates that Petitioners were being furnished everything needed for determining the validity of Respondents' pricing, but made no mention of the incentive factor.” Under these 9 It was stated in Respondents’ letter of February 8, 1974, P. Ex. 6, pages 8-9: "It is our belief that the information furnished herewith is sufficient to permit application of such formula. Longview does not take the position that it is entitled to charge any price in excess of base price. Therefore, the other information you have a 96 circumstances, Respondents should logically have been estopped from asserting that the factor should be included. However, post trial examination of Respondents’ sales schedules show that no refiner incentive factor is applicable during the pertinent period. The incentive factor is applicable only to middle distillates, and is designed to encourage and reward increased middle distillate production. Longview Refining Company had no increase in middle distillate yield during the pertinent period. Therefore, under the terms of Sec. 212.84, there is no refiner incentive available to them. The lower court also made a passing reference to "increased product cost" included by Respondents in their calculations. The "additional costs" incurred by Respondents represent costs "generated" by Crystal subsidiaries through inter-company transfers. 9(cont) . requested is not material to the lawfulness of Longview's prices." The refiners incentive factor results in a price in excess of base price. Accordingly, it is clear that Respondents are estopped from claiming that information they did not furnish should be included in_ the calculations. 97 Butane was acquired through inter-company transfer, and then sold to the B. F. Goodrich Company at a loss. Longview Refining Company purchased polymer from 8B. F. Goodrich Company. The polymer was used as a blending stock. Respondents contended that they had to sell the butane to Goodrich in order to get the polymer. The cost of the polymer, i.e., the price paid by Longview Refining to B. F. Goodrich was included in Petitioners' calculations of product cost. The loss on the butane obtained in the inter-company transaction was not included. Only the direct cost of crude and blending stocks used directly in the processing of the finished product are properly includable as costs. This applies also to the purchase of gasoline and diesel. Respondents also included in their calculations an inter-company purchase of gasoline for .27587 cents per gallon and sale by Longview at .2050 cents which served no purpose except to increase Longview's costs. The same is true of a purchase of diesel for .27372 cents and sale at .2050 cents. These inter-company transfers represent nothing more than a further attempt to circumvent the law. The lower court observed that they were not 98 demonstrated to be improper, but the trial court was certainly justified in so concluding on the basis of the nature of the transactions, and Respondent's various manipulations of the pricing regulations. Furthermore, the effect of these questionable transactions, even if accepted at face value, are negligible so far as the present case is concerned because of the decreased purchases by the Petitioners. The figures are as follows: Additional cost - per consolidated report: January $ 42,857.00 February 69,815.00 Total Additional Cost $§ 112,672.00 Gas and Diesel Percentage: January .5695 X 42,857.00 = $ 24,407.00 February .5475 X 69,815.00 = 38 223.00 Petitioner's Percentage: Tanuary .1411 X 24,407.00 = $ 3,443.00 February .0942 X 69,815.00 = 6,576.00 Total Additional Cost - Petitioners’ Portion $ 10,019.00 99 The costs for February would not be recouped until March, Since Petitioners' calculations only covered a period ending in February, the February costs would not be considered, Thus these so-called additional costs would have only a negligible effect on recovery in any event. If Petitioners are wrong and the transfers are required to be considered, Petitioners' recovery can be reduced by the appropriate amount ($3,443.00), but there is certainly no need for new trial for this purpose. 4. There is no. necessity and no _ legal uirement for joinder of the admin trate aGeney ih wou agency which serve only to delay Sposition of the case, The lower court has instructed the trial court, on remand, to order the FEA to be joined as a party to the litigation. This is done even though it has not been requested or Suggested by either party. The court also instructs the trial court that it may call and examine a witness from Petrofina to determine the 100 truth regarding the existence of the alleged agreement of June 4, 1973 between Longview and Petrofina. The indication is that the trial court could not make this determination from the Respondents' testimony, adduced through French Peterson, and Reba Morrow which testimony, contrary to supporting such an agreement, negates its existence. The trial court is also invited to secure the testimony of Mr. Leeseman (who properly should have been Respondents' witness but was not) regarding the Respondents' understanding and application of the pricing formula. Of course, it is undisputed that no qualified effort was made to follow the formula while Mr. Leeseman was in charge and it is difficult to see how Mr. Leeseman's testimony could add or detract from this proposition, since Mr. Leeseman's method of calculation, illustrated in his own handwriting, is in evidence. These directions by the court to the trial court are unwarranted, without authority, and impose an unnecessary burden upon retrial of this case. The requirement that the FEA be joined is particularly dilatory. It is settled that in redressing grievances under the Acts and the regulations, Petitioners may apply directly to the 101 district court and need not “exhaust administrative remedies", a proposition that is not even in question in this case, 10 This case has been fully developed, and, if remanded, can be retried expeditiously without bureaucratic assistance or intervention, which will serve only to delay. This delay should, and can easily be avoided, CONCLUSION On different occasions in the opinion, the lower court speaks of "fairness" for the Respondents, but nothing is said about fairness for the Petitioners. The trial court heard the evidence and observed the demeanor of the witnesses, and their attorneys (who were found to have directly misstated relevant facts to the Petitioners, which caused Mr. Houghton to take the witness stand to shield Mr. Paine from responsibility for the misstatements). On the basis of all the evidence the trial court reached a 10 Respondents raised the point in the trial po ef were overruled, and abandoned it on eal, 102 conclusion that there had been a_ willful overcharge. The Petitioners upon whom the overcharge was inflicted were all seriously injured financially, and certain of them were forced out of business as a result. It is strongly intimated by the lower court that the Petitioners should have filed a presuit demand for refund of the overcharge, setting forth specifically, with respect to each Petitioner, the exact amount of the overcharge claimed. The fact that this presented an impossible burden to the Petitioners, who, without litigation, did not have access to the necessary facts and figures, is ignored by the lower court, yet it embraces the proposition that the Respondents, who are armed with the facts and figures, may escape the consequence of a willful overcharge by claiming that they did not know their prices would results in an overcharge. The holding of the lower court that the failure to follow the pricing formula does not constitute a legal wrong, and that it is only the intentional charging of a price known to be in excess of the applicable ceiling price allowable which constitutes a willful overcharge invites and authorizes intentional disregard of _ the 103 regulations. When this holding is considered against the following language in the opinion it is apparent that the opinion gives unwarranted protection to Respondents against the effect of deliberate actions resulting in overcharges: "It is difficult, even for experts, to understand these complex regulations, as evidenced by the frequent correction, modification, change and clarifying rulings...." With this as an umbrella Respondents will be able, with virtual impunity, to state that they did not understand the regulations and did not know their prices exceeded the applicable ceiling price. The incongruity of this holding is illustrated by the fact that the opinion also states that Petitioners, who do not have the facts and figures (and rarely possesses the expertise) of the Respondents must, before suit is filed, tell the Respondents exactly how much _ the Respondents have overcharged. The record in this case clearly shows that Respondents have thus far accomplished what the regulations are designed to prohibit. They have done so by deliberately ignoring the regulations in charging excessive prices to the 104 Petitioners, and then manipulating — the regulations to avoid the consequences of the overciarges. By use of the illegal and erroneous priciig scheme Respondents reduced _ the percentage of gas and diesel sold to Petitioners from 30.71% of production in May, 1973, to 9.42% in February, 1974, with fuel being diverted to Crystal retail subsidiaries. As a result, certain of the Petitioners were forced from business, and all suffered considerable financial loss. The holdings in the lower court's opinion obviously transcend the present case. The opinion will place serious and perhaps insurmountable obstructions in the path of proof of legitimate overcharge cases. The Petitioners do not believe that these obstructions are contemplated by the Acts or the regulations. If not, the intent of Congress and the rulemakers stands to be frustrated. Before this is allowed, it is respectfully submitted that this application for writ of certiorari should be granted. 105 Respectfully submitted, PRICE & WILLIAMS 306 East llth Street Suite L-7 Austin, Texas 78701 (512) 474-1563 by: Yo V\ CP. JACK [Text truncated at 120,000 characters. The full text is on the page linked above.] --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385004_2095%3A1. Public record. Not legal advice.