Petition — Getty Oil Co. v. Department of Energy

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( [> Supreme Court, U.S,

ddd ee D

OCT 11 1978

In THE

Supreme Court of the Havitedsienea cos

OctToBer TERM, 1978 ~

No. 78-619

Getty O1 COMPANY,

Petitioner,

VS.

DEPARTMENT OF ENERGY and

JAMES R. SCHLESINGER, Secretary of Energy,

Respondents.

PETITION FOR A WRIT OF CERTIORARI

TO THE TEMPORARY EMERGENCY

COURT OF APPEALS

WILLIAM E. WICKENS

WILLIAM SIMON

W. DONALD DRESSER

HOWREY & SIMON

1730 Pennsylvania Avenue, N.W.

Washington, D.C. 20006

C. LANSING Hays, Jr.

Davip A. Ross

HAYS & LANDSMAN

11 Broadway

New York, New York 10004

Attorneys for Petitioner

Getty Oil Company

Of Counsel:

KATHLEEN A. O’CONNOR

3810 Wilshire Boulevard

Los Angeles, California 90010

%«

TABLE OF CONTENTS

Page

RI UII ona cccsccnccuksscinecesnescsences iia hassles 2

Cees saaatianmnnnenenansesbianncess 2

ys _ 2

PERTINENT CONSTITUTIONAL PROVISION,

STATUTE AND REGULATION .......0.........cceceeeees 4

STATEMENT OF THE CASE

I saspenncnscnnsesoncnecs 5

2. The Administrative Proceeding .....................:ccc0c008 6

3. The District Court’s Decision..................sccccccsscsseseees 12

4. The Opinions by the Temporary Emergency Court

SEEN 13

REASONS FOR THE WRIT

1. The Majority’s Decision Ignores Well-Established

Constitutional Principles Which Make the FEA’s

Regulations Void for Vagueness and for Lack of

Notice as Applied to Getty’s Solvents .................. 17

2. There is a Conflict Within The Temporary Emer-

gency Court of Appeals Regarding the Scope of

the Agency’s Discretion, an Issue That is Impor-

- to Administration of the Nation’s Energy

SIIINIINIIIIAid iain ialaisdincnakishnenanneesadilapsatseceecererceoseseees 19

3. This Court Should Decide the Novel Question of

Whether Getty was Bound to Abide by Regu-

lations that the Agency Should Have Issued But

ESS IESE SIO 21

. 4. The Majority’s Decision Will Impede Solutions to

the Nation’s Energy Problems and Inundate the

Federal Courts with Unnecessary Litigation........ 22

oo ethan 0 ee

5. The Majority’s Disregard of the District Court’s

Factual Findings So Far Departs From the

Accepted and Usual Course of Judicial Proceed-

ings as to Require the Exercise of this Court’s

Nea seanessnnnnnncoonses 23

Page

III cid sabia insstcsincedencocdshinedinetindencnsadardeniitanenansten 25

APPENDIX

Opinions by the Temporary Emergency Court of Ap-

peals

LES Os LTC A l-a

ES ae a TE 9-a

Opinion By the District Caitt...........ccccccocscocssesscsccccsccssccsees 1S-a

Decision by the Federal Energy Administration .............. 27-a

Denial of Rehearing or Rehearing En Banc by the

Temporary Emergency Court of Appeals..................0. 42-a

TABLE OF AUTHORITIES

CASES:

Anderson National Bank v. Luckett, 321 U.S. 233

ER per a SERN ee A ee ee

Armstrong v. Maple Leaf Apartments, Lid., 436 F.

Be eek RL) er eee

Champlin Refintig Co. v. Corporation Commission of

Oklahoma, 286 U.S. 210 (1932) ...cccccccccccccccsccecseeeeees

Condor Operating Co. v. Sawhill, 514 F.2d 351

(T.E.C.A. ), cert. denied, 421 U.S. 976 (1975).........

err: v. General Construction Co., 269 U.S. 385

I isi laiiatnihicatisabis ae eee

Consumers Union v. Sawhill, 512 F.2d 1112, vacated,

pve hh Fig oF ok % D . . . | Ca URRUEeNUerenON

— v. Board of Public Instruction, 368 U.S. 278

| ROSSA R Te aoe one On OF ce ae

Federal Maritime Commission v. Anglo-Canadian

Shipping Co., 335 F.2d 255 (9th Cir. 1964) 0.0.0.0...

Federal Power Commission v. Texaco Inc., 417 US.

REFIT NEST Sn ESN

Lanzetta v. New Jersey, 306 U.S. 451 (1939) ..............

Longview Refining Co. v. Shore, 554 F.2d 1006

(T.E.C.A. ), cert. denied, 434 U.S. 836 (1977).........

Marathon Oil Co. v. FEA, 547 F.2d 1140 (T.E.C.A.

1976), cert. denied, 430 U.S. 983 (1977) .........00000.

Mobil Oil Corp. v. FEA, 566 F.2d 87 ( T.E.C.A. 1977)

Mullane v. Central Hanover Bank & Trust Co., 339

Be UU ITs sis cathe catictcadlemiebadeiethadennceianananencasanensce

National Helium Corp. v. FEA, 569 F.2d 1137

EER TTT OD scieesbiclsnsns antes hind venepsinbidocseniasansiaehesinaininical

Phillips Petroleum Co. v. DOE, 449 F. Supp. 760 (D.

I a actinladeniet

Real v. Simon, 510 F.2d 557 (Sth Cir. 1975)...............

Shell Oil Co. v. FEA, 527 F.2d 1243 ( T.E.C.A. 1977)

Standard Oil Co. v. FEA, 453 F. Supp. 203 (N.D.

STR Sa aS aac <P

United States v. Cardiff, 344 U.S. 174 (1952) .....0.......

wer States v. Cohen Grocery Co., 255 US. 81

IT Tica iccaidelerairaehidaddhaitsae athisaha dai eiadsnskueuiiandaaadirionenancens

Page

19,20,21

STATUTES:

U.S. Code

2B USC. © CIRO saiditiciciscccetnereestein

Economic Stabilization Act

Section 211, 12 U.S.C. § 1904 note .......................

Section 211(g), 12 U.S.C. § 1904 note.........000.....

Emergency Petroleum Allocation Act

Section 4a), 18 U.S.C. $753¢ a) ......0...........0.200000

Section 4(g), 15 U.S.C. §753(g)

Cree Ce iinteitiinitctieacneielintitanininnctniine

Section 5(a)(1)(A), 15 U.S.C. § 754(a)(1)(A)

CONSTITUTION OF THE UNITED STATES:

US. Conmuat. Pa, Wy aiicsethancenintianiensecsncisipitdcedencons

CODE OF FEDERAL REGULATIONS:

BO CLP.ER, B BOE Wiiearcttecencsdetenctactbteberiitns

0D CF.BR. & De te Picasa hstcaseseensmesaibiabaneninn

0O CLIP.ER. FRU Bee cecetesttsintsaccnabilbcsnasanesianes anaes

00 CLP. © Be ee ceiicniscntihseaueens

OO COIP.BR, Gre haiti hereaiansiacccsiicisstbaetbbeeanitanhcietechiaaioaee

BO CLIP.ER, © re ee cectssactserntacntteecemniecetnenes,

fed A). > k BRO SRS ee

PRINCIPAL FEDERAL REGISTER CITATION:

40 Fed.Reg. 2795 (January 16, 1975)..................

OTHER:

Conference Report No. 93-628, 93d Cong., Ist

Sess., reprinted in [1973] U.S. Code Cong. &

Abani, PO TTD iicciosieninccrsnntiinclbianitiaiions

Sup. Ca. R. IR Oi 6 oe

Page

eeu

IN THE

Supreme Cowt of the Wnited States

OCTOBER TERM, 1978

No.

Getty Oi, COMPANY,

Petitioner,

VS.

DEPARTMENT OF ENERGY and

JAMES R. SCHLESINGER, Secretary of Energy,

Respondents.

PETITION FOR A WRIT OF CERTIORARI

TO THE TEMPORARY EMERGENCY

COURT OF APPEALS

Petitioner respectfully requests this Court to issue its writ of

certiorari and review the judgment and opinions of the Tempo-

rary Emergency Court of Appeals entered in this action on July

18, 1978, which affirmed an order of the District Court granting

summary judgment in favor of respondents.

OPINIONS BELOW

The majority opinion of the Temporary Emergency Court

of Appeals unofficially is reported at CCH Energy Management

Reporter 926,108. Both the majority and dissenting opinions

are reproduced in the Appendix at pages la through 14a. The

memorandum opinion and order of the United States District

Court for the Northern District of Oklahoma is reported at 448

F. Supp. 16 under the caption Skelly Oil Co. v. FEA and is

reproduced in the Appendix at pages 15a through 26a. The

final decision of the Federal Energy Administration, dated

March 19, 1976, from which petitioner sought judicial review, is

reproduced in the Appendix at pages 27a through 41a.

JURISDICTION

This Court has jurisdiction pursuant to 28 U.S.C.

§1254(1), §211(g) of the Economic Stabilization Act, 12

U.S.C. §1904 note, and §5(a)(1)(A) of the Emergency Petro-

leum Allocation Act, 15 U.S.C. §754(a)(1)(A). The Tempo-

rary Emergency Court of Appeals rendered its decision on July

18, 1978 and denied petitioners’ timely request for rehearing

and. suggestion for rehearing en banc on September 11, 1978.

(App., 42a) The Court of Appeals and District Court had

jurisdiction pursuant to §211 of the Economic Stabilization Act

and §5(a)(1)(A) of the Emergency Petroleum Allocation Act.

QUESTIONS PRESENTED

The Temporary Emergency Court of Appeals determined

that respondents’ price control regulations by their terms did

not cover solvents; but nevertheless a majority of the panel held

that petitioner violated non-existent regulations controlling

solvent prices that they thought the agency should have issued.

The questions presented by this petition transcend the interest

of petitioner Getty Oil Company and other petroleum com-

panies similarly affected by the majority’s retroactive imposition

of price controls on solvents. The majority’s decision affects the

basic fabric of administrative and Consititutional law. The

questions presented for review are:

1. Whether the Constitutional doctrine that regu-

lations violate due process and thus are invalid if they are

unduly vague requires, a fortiori, that the claim that Getty

violated admittedly non-existent regulations be dismissed?

2. Whether the Temporary Emergency Court of

Appeals erred in holding that the Emergency Petroleum

Allocation Act conferred a mandatory duty upon the

Federal Energy Administration to control solvent prices;

especially in light of (a) the agency’s contrary finding that

the statute is ambiguous, and its consequent admissions

that the decision whether to control solvent prices was an

exercise of its discretion, plus (b) the terms and legislative

history of the Act and prior judicial decisions emphasizing

that discretion?

3. Assuming arguendo that the Federal Energy Ad-

ministration had a statutory duty to control solvent prices,

with which it failed to comply, whether it was error for the

Temporary Emergency Court of Appeals to find that the

“deficiency” was “immaterial” and to hold petitioner

retroactively liable for more than $2.5 million for violating

regulations that the agency should have issued but did not?

4. Whether, in the absence of any evidentiary hearing

before the administrative agency or any trial before the

District Court, the Temporary Emergency Court of Ap-

peals erred in basing its decision on the agency’s disputed

factual finding, rejected by the District Court, that Getty

should have known during the relevant period that the

agency intended to control solvent prices?

PERTINENT CONSTITUTIONAL PROVISION,

STATUTE AND REGULATION

The Fifth Amendment to the United States Constitution

provides, in pertinent part:

No person... shall... be deprived of life, liberty, or

property, without due process of law... .

Section 4(a) of the Emergency Petroleum Allocation Act,

15 U.S.C. § 753(a), provided throughout the period May |,

1974 to January 10, 1975:

Not later than 15 days after the date of enactment of

this act, the President shall promulgate a regulation

providing for the mandatory allocation of crude oil,

residual fuel oil, and each refined petroleum product,

in amounts specified in (or determined in a manner

prescribed by) and at prices specified in (or deter-

mined in a manner prescribed by) such regulation.

Subject to subsection (d), such regulation shall take

effect not later than 15 days after its promulgation.

Such regulation shall apply to all crude oil, residual

fuel oil, and refined petroleum products produced in

or imported into the United States.

The definitional section of the price control regulations

published by the Federal Energy Administration pursuant to §

4(a) of the Emergency Petroleum Allocation Act, 10 C.F.R. §

212.31, provided in pertinent part throughout the period May 1,

1974 to January 10, 1975:

“Covered products” means crude oil, residual fuel oil

and refined petroleum products.

* * *

“Refined petroleum product” means gasoline, kero-

sene, middle distillates (including Number 2 fuel

oil), LPG, refined lubricating oils, or diesel fuel.

* * +

of Ge —~

“Middle distillates” means Nos. | and 2 heating oils,

Nos. 1-D, 2-D, and 4-D diesel fuels, No. 4 fuel oil,

kerosene and aviation fuels.

STATEMENT OF THE CASE

1. Introduction. This petition seeks review of a divided

decision by a panel of the Temporary Emergency Court of

Appeals (majority opinion by Becker, J., for himself and

Carter, J.; Zirpoli, J., dissenting) holding that Getty' violated

an administrative regulation which admittedly did not even

exist during the relevant time period—May |, 1974 through

January 10, 1975—and requiring Getty to pay approximately

$2.5 million plus interest for that purported violation.

The majority’s unprecedented decision ignores decades of

developments in Constitutional and administrative law embo-

died in decisions of this Court and the regular circuit courts of

appeal. It is well established that when governmental agencies

fail to write regulations that are sufficiently clear, so that men of

common intelligence must guess at their meaning and differ as

to their application, the offending regulations are Con-

stitutionally invalid and may not be enforced. When agencies

fail to notify the public of their rules and regulations, the

regulations are equally invalid. Here, both courts below

recognized and the agency? admitted that the Federal Energy

Administration (““FEA”) had not promulgated any regulation

which proscribed Getty’s alleged activities. If vague regulations

may not be enforced, then it should follow, a fortiori, that non-

existent regulations cannot be enforced either.

The Court of Appeals’ stated basis for its decision threat-

ens both to disrupt the nation’s effort to deal with its energy

1 Throughout this petition, the name “Getty” refers to both Getty

Oil Company and its predecessor in interest, Skelly Oil Company.

( See App., 2a)

2 Similarly, references to the “agency” in this petition mean the

Federal Energy Administration or its successor, the Department of

Energy, whichever is appropriate. (See App., 2a)

problems and to inundate the federal courts with complex cases

that entirely could be avoided. In creating the Federal Energy

Administration and later the Department of Energy, Congress

vested those agencies with wide discretion to write regulations

which the agency determined would best satisfy numerous

competing national goals. Prior decisions of the Temporary

Emergency Court of Appeals emphasized the discretion of the

agency to determine how to reconcile those goals and thus

determine the public interest. Exactly contrary to those prior

decisions by other panels of the same Temporary Court, the

majority below ignored the agency’s regulations and substituted

their own judgment of what the agency should have done. By

denigrating the agency’s regulations and exalting their own

impression of how the agency should act, the majority undercut

the agency’s ability to cope with its tasks and encouraged large

quantities of litigation that federal courts can ill afford. For if

the agency cannot write regulations that mean what they say,

without being subject to revision by the Temporary Emergency

Court of Appeals, then the agency’s words are worthless and

the public must turn to the courts for decisions which regulate

their daily affairs.

By punishing Getty, the majority’s decision mocks both

logic and justice. Getty faithfully followed those regulations

that did exist. The majority ignored the actual regulations upon

which Getty relied and decreed that other regulations should

also have existed. Even if the agency’s regulations were

deficient, it does not follow that the majority’s amendments

should be applied retroactively and that Getty should pay

millions of dollars for the agency’s mistake. As the dissent

concluded, “The agency’s failure...cannot, in fairness to

Getty, be cured in the manner approved by the majority.”

App., 14a)

2. The Administrative Proceeding. This action commenced

as an administrative proceeding. On October 31, 1974, the

FEA sent Getty a “Notice of Probable Violation,” alleging that

Getty had increased the price of solvents that it sold after May

1, 1974 by more than its increased costs. (R. 11) During the

period May |, 1974 to January 10, 1975, however, the FEA’s

price control regulations did not cover solvent prices.3 As Judge

Zirpoli stated in his dissent, “cven the agency concedes that the

pricing regulations, by their literal terms... simply failed to

cover solvents.” (App., I3a) It was not until after Getty

responded to the Notice of Probable Violation, on November

12, 1974 (R. 4), that the agency amended its price control

regulations to cover solvents. See 40 Fed. Reg. 2795 (January

16, 1975). Those amendments did not purport to be retro-

active. After January 16, 1975, Getty fully complied with the

new controls on solvent prices.

The agency did nothing, except change its regulations,

between November 1974, when Getty responded to the Notice

of Probable Violation, and November 1975. On November 24,

1975, the FEA issued a “Remedial Order” which stated,

contrary to the agency’s express regulations, that Getty’s so!-

vents were “covered products” between May 1, 1974 and

3 A chain of three definitions lists all products that the FEA made

subject to its price contro! regulations during the period May 1, 1974

to January 10, 1975.

“Covered products” means crude oil, residual fuel oil

and refined petroleum products. (Emphasis added )

* * *

“Refined p..roleum products” means gasoline, kero-

sene, middle distillates (including Number 2 fuel oil ),

LPG, refined lubricating oils, or diesel fuel. (Empha-

sis added )

* * *

‘* Middle distillates” means Nos. | and 2 heating oils,

Nos. 1-D, 2-D and 4-D diesel fuels, No. 4 fuel oil,

kerosene and aviation fuels. (Emphasis added )

10 C.F.R. § 212.31. It is undisputed that solvents are not

included in any of the items listed above as they are thus

defined.

January 10, 1975, and directed Getty to refund $2.594 million

plus interest to its customers. (R. 13) Getty filed an adminis-

trative appeal from the Remedial Order on December 12, 1975.

There was no trial or administrative hearing, no taking of

evidence, no administrative ecord and no findings of fact

based on such a record a his or any other stage of the

administrative proceeding. On March 19, 1976, the FEA’s

Office of Exceptions and Appeals issued a final order denying

Getty’s appeal. (R. 25; App., 27a)4

The FEA’s eventual justification for charging Getty with

violating price controls during the eight and one half months

before it promulgated a regulation covering solvents on January

16, 1975, was that Getty should have known that the agency

intended to control solvent prices. Even if that were a proper

method of administering highly technical economic regulations,

there is no basis in an administrative record or otherwise for

holding that Getty should have known the FEA’s intentions.

What, if anything, Getty knew or should have known about the

agency's true intentions and what those intentions truly were

are facts that have never been determined.

Despite the lack of any evidentiary hearing before the

FEA, the District Court promptly ratified the FEA’s adminis-

trative decision by granting its motion for summary judgment.

Consequently, the “evidence” on which the agency and major-

ity relied consists entirely of post hoc speculation that never has

been tested.

The agency offered three specific pieces of “evidence” to

support its position that Getty should have known that the

FEA, despite the plain meaning of its regulations,’ actually

“The FEA remanded the restitution aspect of the Remedial

Order to the local regional office. (App., 40a) The FEA has not yet

issued a revised Remedial Order. The issues of the amount of

restitution and interest and the authority of the agency to make such

an order thus have not been raised in this action and are not before

this Court.

5 See n.3, supra.

ee ee ee a

intended to control solvent prices. The first “evidence” was

that during the same period, the FEA did make solvents subject

to its allocation regulations, 10 C.F.R. Part 211.6 Judge Zirpoli,

dissenting, pierced the majority’s reliance on that “evidence”

with two easy thrusts:

The fact that a certain product is covered by the

allocation regulations, however, does not lead in-

exorably to the conclusion that such product is also

covered by the agency’s pricing regulations. Some

products have in fact been intentionally subjected to

one set of controls but not the other.3 More significant,

perhaps, since the question before this court is the

degree of notice Getty should be presumed to have

received from the allocation regulations, is the fact

that counsel for neither Getty nor the agency could

state with certainty at oral argument whether the

pricing and allocation regulations have always been

precisely parallel. The agency argues that Getty

should have read the regulations as a whole and thus

realized that since solvents were subject to allocation

controls they were also subject to price controls. Such

an argument loses considerable force when counsel

for the agency cannot say whether any products have

ever been subject to only one set of regulations.

(App., 13a-14a; emphasis added )

3 Naphthas used as synthetic natural gas feedstocks,

for example, are presently subject to allocation but

not price controls. 10 C.F.R. § 210.35(d)(1) and

(2).

6 The majority mistakenly relied on dicta in National Helium

Corp. v. FEA, 569 F.2d 1137 (T.E.C.A. 1977) to support this analogy.

In his dissent, Judge Zirpoli explains the difference between this case

presently before the Court, where the “pricing regulations, without

ambiguity, simply failed to cover solvents,” and National Helium,

where the court found “an ambiguity in the regulations.” (App., 13a

n.2) In addition, the National Helium dicta in footnote 17 merely

asserted that coverage by one set of regulations was rulemaking notice

as to the other set. It did not hold that price and allocation regulations

were eacevtencive

Subsequent to oral argument, counsel for the government

advised the Court that several specific products had been

subject to either price controls or allocation but not both.

Furthermore, the agency's allocation regulations contained a

different set of definitions than the price control regulations.

Those definitions expressly included “solvents” within the list of

products covered by the allocation program. 10 C.F.R. §

211.201.7 Thus, if Getty should have drawn any conclusions

from the differences between the allocation and price control

programs that the FEA administered, it was that during this

particular period price controls did not cover solvents.

Moreover, the FEA’s pricing regulations are so com-

plicated by themselves that it is not feasible to interpret them by

reference to the allocation regulations. Just during the period

April 1974 to January 1975, the agency issued numerous

amendments, corrections, revisions, interpretations and other

changes to its price control regulations.* This list does not

7 Compare § 211.181-182, which stated that solvents were not

included within the specialized allocation program for naphtha.

8 See, e.g., 39 Fed. Reg. 12354 (April 5, 1974), amending §

210.21, adding §210.34 and amending §212.31; 39 Fed. Reg. 12997

(April 10, 1974), revising §§ 212.53(c) and 218.81(f)(5); 39

Fed.Reg. 13258 (April 12, 1974), correcting §212.31; 39 Fed.Reg.

15139 (May 1, 1974), amending § 212.83(c)(2), revising §§ 212.101

and 212.103(c); 212.103(c); 39 Fed.Reg. 17293 (May 14, 1974),

removing §212.88 and adding § 212.94; 39 Fed.Reg. 17764 ( May 20,

1974), interpreting Part 212; 39 Fed.Reg. 17975 (May 22, 1974),

amending § 212.83(c)(2); 39 Fed.Reg. 18638 (May 29, 1974),

adding § 212.112; 39 Fed.Reg. 22133 (June 20, 1974), revising §

210.62(a); 39 Fed.Reg. 23251 (June 27, 1974), amending §

212.74(b); 39 Fed.Reg. 24358 (July 2, 1974), amending §§ 212.31

and 212.83(c)(2); § 212.83(c)(2); 39 Fed.Reg. 24924 (July 8,

1974), revising § 212.112; 39 Fed.Reg. 25359 (July 10, 1974),

revising § 212.112; 39 Fed.Reg. 26286 (July 18, 1974), correcting §

212.112; 39 Fed.Reg. 28609 (August 9, 1974), revising §

212.83(c)(1)(i); 39 Fed.Reg. 30829 ( August 26, 1974), amending

§ 212.83(c)(2); 39 Fed.Reg. 31623 (August 30, 1974), revising

§§ 212.72 and 212.74(b) § 212.74(b) and adding § 212.131; 39

(footnote continued)

ke ee ee ee ee

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B wind

include numerous other proposals to change those same regu-

lations plus various other solicitations of public comment.®

(footnote continued)

Fed.Reg. 22133 (September 5, 1974), removing §§ 212.81, 210.82

and 210.83 and, at 32308, amending §§ 212.83(d)(1) and (2) and

212.93(e); 39 Fed.Reg. 32286 (September 5, 1974), adding §

212.132; 39 Fed.Reg. 35509 (October 1, 1974), republishing § 210;

39 Fed.Reg. 36320 (October 9, 1974), interpreting § 212; 39

Fed.Reg. 38365 (October 31, 1974), amending § 212.83(b) and

adding § 212.84; 39 Fed.Reg. 39261 ( November 6, 1974), redesigna-

ting § 212.93(f) as 212.93(g) and adding new § 212.93(f); 39

Fed.Reg. 42249 ( December 4, 1974), revising § 212.131; 39 Fed.Reg.

42369 (December 5, 1974), amending § 212.31, §§ 212.51 and

212.82; and § 212.82; 39 Fed.Reg. 42373 (December 5, 1974),

amending § 212.84(a), removing § 212.85 and adding § 212.87,

amending §§ 212.111(b) and 212.112(b) and removing §§ 212.121

to 212.125; 39 Fed. Reg. 43389 (December 13, 1974), correcting

§ 212.82(b)(2); 39 Fed. Reg. 44406 (December 24, 1974), revising

§§ 210.34(a) and 210.34(b), amending §§ 212.31 and 212.83(c)(2),

and redesignating adding §§ 212.83(c)(1)(iv) and 212.83(d)(3),

redesignating § 219.93(f), and (g) as § 212.93(g) and (h), adding

new § 212.93(f), and adding §§ 212.141 to 212.150; 40 Fed.Reg.

2795 (January 16, 1975), amending §210.21 and revising § 212.1(a);

40 Fed.Reg. 2796 (January 16, 1975), amending § 212.31.

9 See e.g.. 39 Fed.Reg. 17771 (May 20, 1974), proposing new §

212.84; 39 Fed.Reg. 18471 (May 28, 1974), proposing to amend §

210.62(a); 39 Fed.Reg. 25602 (July 11, 1974), proposing to delete §

210 subpart F; 39 Fed.Reg. 28646 (August 9, 1974), proposing to

amend § 212.129; 39 Fed.Reg. 30505 ( August 23, 1974), extending

time for comments on proposed amendments to § 212.129; 39

Fed.Reg. 32309 (September 5, 1974), proposing to revise §

212.83(b) and add § 212.84; 39 Fed.Reg. 32310 (September 5,

1974), further notice of proposed rulemaking on §§ 212.83 and

212.84; 39 Fed.Reg. 32718 (September 10, 1974), proposing to revise

§210.31 and make extensive changes in § 212; 39 Fed.Reg. 33015

(September 13, 1974), correcting text in proposed § 212.84; 39

Fed.Reg. 33381 (September 17, 1974), rescheduling public hearing

re revision of Part 212; 39 Fed.Reg. 37072 (October 17, 1974), notice

of public hearing on proposed amendment to 10 C.F.R. § 212.129; 30

Fed.Reg. 38395 (October 31, 1974), further notice of proposed

rulemaking to amend § 212.84; 39 Fed.Reg. 39740 (November 11,

1974), revising proposed amendments to § 212.131.

Furthermore, the agency made many, many more amendments,

corrections, etc. to other parts of its regulations also affecting

Getty. It may be, as the agency now seems to argue, that these

regulations did not accurately reflect the agency’s subjective

intent. But Getty then believed that its duty was to follow what

the agency’s regulations stated and not to divine hidden or

unstated meanings. If due process and fair notice mean

anything, they surely mean that Americans should not have to

consult with soothsayers or use Ouija boards to learn what their

government requires.

The only other “evidence” that the agency could muster in

support of its contention that Getty should have known that the

FEA intended to control solvent prices was § 4(g) of the

Emergency Petroleum Allocation Act,’ and the fact that the

Cost of Living Council previously had controlled solvent prices

pursuant to the Emergency Stabilization Act of 1970.11 That

was not sufficient to overcome the plain language of the

agency’s regulations, which admittedly stated that solvents were

not covered by the price control regulations,'2 since the Stabili-

zation Act expired prior to the time period covered by this

dispute.

3. The District Court’s Decision. Getty sought judicial

review of the agency’s decision in the United States District

Court for the Northern District of Oklahoma. The District

Court disagreed with the agency’s finding that Getty knew or

should have known that the FEA intended to control solvent

prices, stating:

10 That section did not apply to products like solvents which, as

the agency determined (App., 32a-33a), the FEA had discretion

whether or not to make subject to its price controls. In any event, that

section apparently never was used and, in later 1975, was legislated

out of existence.

‘1 Since that same Act authorized the Cost of Living Council to

control the price of everything from aardvarks to zucchini, it scarcely

can be held to have conveyed to Getty notice that FEA intended to

regulate solvents.

12 See n.3, supra,

tet ee Di i te

The Court does not mean to attribute any degree of

bad faith to Skelly for its interpretation of the April 5,

1974 regulation, and it would agree that “Skelly is not

a seer nor can it divine the intent of FEA underlying

its own regulatory definitions.” (App., 26a, emphasis

added )

Notwithstanding this finding that Getty had no knowledge of

the agency’s purported intent to control solvent prices, the

District Court granted summary judgment on the theory that

the agency’s failure to control solvent prices was “void” and

therefore that Getty had violated the regulations controlling

solvent prices that the agency should have issued. (App., 25a-

26a)

4. The Opinions by the Temporary Emergency Court of

Appeals. Getty appealed to the Temporary Emergency Court of

Appeals. Like the District Court, the majority held that the

agency itself had violated the Emergency Petroleum Allocation

Act by issuing regulations which did not control solvent prices.

Building on this erroneous premise, the Court declared that

“any deficiency in the regulation” was “immaterial” ( App., 7a)

and then “construed” (App., 7a) the agency’s regulations as if

they had covered solvents during the relevant period. After

finding that Getty should have known that FEA intended to

regulate solvent prices, the Temporary Emergency Court of

Appeals concluded that Getty had violated the FEA’s regu-

lations, as thus retroactively “construed,” and affirmed the

summary judgment granted by the District Court. °

Contrary to the majority’s reasoning, not even the agency

contended that it was obligated as a matter of law to control

solvent prices. Throughout this litigation, the agency has

emphasized the discretionary nature of that decision. Thus, the

author of the regulations in question, Dr. J. Lisle Reed, Director

of the Office of Oil and Gas for the FEA, emphasized this fact

in his affidavit, which the FEA filed with the District Court:

It was my belief, based on my reading of the

legislative history of the EPAA and my knowledge of

the petroleum industry generally that the Congress

.did not intend this list [of covered products] to be all

inclusive, and that the Congress expected the Presi-

dent to exercise judgment in determining which prod-

ucts Congress intended to have subject to regulation

under the EPAA. (R. 205-06, emphasis added )

Dr. Reed further stated in his affidavit that the terms Congress

used in the Emergency Petroleum Allocation Act were vague

and imprecise (R. 192-94) and thus required interpretation by

the agency. Even the agency’s final order stated that the

determination whether to control solvent prices was an exercise

of “the FEA’s administrative discretion.” (App., 32a-33a)

Judge Zirpoli agreed with the agency’s expert and its final

order, stating that “the agency itself, prior to the institution of

this litigation, clearly considered its regulation of solvents an

exercise of discretion rather than a discharge of ministerial

obligation.” (App. 10a-1 1a)

The majority’s conclusion that the agency had a manda-

tory duty to control solvent prices begs the critical question. As

Judge Zirpoli observed.

It requires a considerable amount of interpretation to

reach the conclusion that solvents should be included

within the scope of the statute, and it is questionable

whether one would reach that conclusion at all

without the benefit of the presumption that great

weight is to be accorded the agency’s interpretation

of its statutory mandate. (App., 10a)

In other words, in order to conclude that the agency had a

mandatory duty to control solvent prices, the majority first had

to accept the agency’s discretionary decision that solvents were

included within the meaning of “naphtha” as naphtha was used

i eae

within the legislative history of the Emergency Petroleum

Allocation Act.’ Only Judge Zirpoli was able to pierce this

paradox:

13 ( See R.206) Neither the Emergency Petroleum Allocation Act

nor the legislative history of that Act refers to solvents at any point.

The courts below accepted the agency’s argument that solvents were

included within the meaning of “naphtha” and held against Getty’s

argument that naphtha and solvents are different things, apparently

because solvents sometimes are called “special naphthas.” ( App., 4a )

However, the Act does not refer to naphtha either, and the legislative

history makes only the following reference to naphtha:

Special mention should be made of the term “refined

petroleum product” which is taken from the House amend-

ment. This term is defined to mean kerosene, gasoline,

distillates (including Number 2 fuel oil), LPG (as further

defined to mean propane and butane), refined lubricating

oils, or diesel fuel. The conference committee considers

the term “kerosene” to also encompass jet fuel and the

term “diesel fuel” to also refer to light commercial heating

oil. It is understood that the term “distillates” when

applied in a technical sense would encompass only Num-

bers 1, 2, and 4 fuel oils. Jt is the committee’s intent,

however, that this term also reach to include naphtha and

benzene so as to require the allocation of these products as

may be necessary to accomplish the objective of restoring

and fostering competition in the petrochemical sector of

industry. In this respect the conference committee wishes

to emphasize thai, in expressing congressional concern

with fostering competition in the petrochemical industry,

the committee intends to also identify petrochemical feeds-

tock needs as important end-uses for which allocation

should be made. (Conf. Rep. No. 93-628, 93d Cong. Ist

Sess., reprinted in [1973] U.S.Code Cong. & Admin.

News 2688, 2693, emphasis added )

In the Courts below, Getty unsuccessfully argued that since

solvents were not used as petrochemical feedstocks, this bit of

legislative history did not refer to solvents and thus the agency could

not choose to control solvent prices. Even though Getty also relied on

various agency regulations which stated that solvents were not

naphtha (e.g. § 211.182), the Temporary Emergency Court of

(footnote continued)

While the EPAA seems to impose a mandatory duty

onthe President to regulate the price of “each refined

petroleum product,” the scope of that phrase is so

ambiguous as to necessarily invest the agency with a

certain amount of discretion in determining precisely

what products are subject to regulation. That dis-

cretion is not transformed into a mandatory duty

merely by virtue of its exercise, particularly when, as

Getty contends is the case here, that discretion is

sought to be exercised retroactively. (App., 12a;

emphasis added )

Finally, after determining that FEA had a mandatory duty

to control solvent prices (App., 6a-7a ), contrary to the agency’s

own view; and after accepting the “finding” by the agency that

Getty should have known that the agency intended to control

solvent prices (App., 8a), contrary to the District Court’s

decision; the majority rewrote the agency’s regulations and held

Getty retroactively responsible for what the majority them-

selves described as the agency’s mistake. The damage that this

decision does to Getty could well exceed $3 million. The

damage it will do to the Nation’s energy program, the docket of

the federal courts and Constitutional guarantees as interpreted

by this Court is far more substantial.

(footnote continued)

Appeals called this argument “hypertechnical.” (App., 6a) Presum-

ably, the majority opinion has voided all those regulations and, as a

matter of law, every reference to naphtha in the agency’s regulations

now should be read to include solvents even if the regulations state

otherwise.

The fact that the agency had to rely upon its interpretation of

“naphtha” as used in this legislative history in order to conclude that

it could control the price of solvents vividly demonstrates the difficulty

that a private party would have had realizing that the FEA intended

to control solvent prices even though it did not mention either

naphtha or solvents in its price control regulations.

ee me ot eS ee ST? bee pieblee e emt BAU Se,

REASONS FOR THE WRIT

1. The Majority’s Decision Ignores Well-Established Con-

stitutional Principles Which Make the FEA’s Regulations

Void for Vagueness and for Lack of Notice as Applied to

Getty’s Solvents

In the majority decision below, the Temporary Emergency

Court of Appeals “construed” respondents’ price control regu-

lations to cover Getty’s solvents even while admitting that by

their terms, the regulations did not extent to solvents. (App.,

7a) The majority then dismissed Getty’s contention that this

construction of the agency’s regulations violated due process

with a decision entirely contrary to fundamental Constitutional

principles embodied in decisions of this Court.

This Court has often repeated that statutes or regulations

are void if they are unduly vague. Thus, “a statute which either

forbids or requires the doing of an act in terms so vague that

men of common intelligence must necessarily guess at its

meaning and differ as to its application, violates the first

essential of due process of law.”” Connally v. General Construc-

tion Co., 269 U.S. 385, 391 (1926). ““No one may be required

at peril of life, liberty or property to speculate as to the meaning

of penal statutes. All are entitled to be informed as to what the

State commands or forbids.”’'4 Lanzetta v. New Jersey, 306 U.S.

451, 453 (1939). ‘“‘Words which are vague and fluid... may

be as much a trap for the innocent as the ancient laws of

Caligula.” United States v. Cardiff, 344 U.S. 174, 176 (1952).

“In the light of our decisions, it appears upon a mere inspection

that these general words and phrases are so vague and in-

definite that any penalty prescribed for their violation con-

stitutes a denial of due process of law. It is not the penalty itself

that is invalid but the exaction of obedience to a rule or

standard that is so vague and indefinite as to be really no rule

or standard at all.”’ Champlin Refining Co. v. Corporation

14 Violation of the agency’s regulations is a criminal offense.

Commission of Oklahoma, 286 U.S. 210, 243 (1932). See also

Cramp v. Board of Public Instruction, 368 U.S. 278, 287

(1961).

Adequate notice is another element of due process. Mul-

lane v. Central Hanover Bank & Trust Co., 339 U.S. 306, 318-

20 (1950); Anderson National Bank v. Luckett, 321 U.S. 233,

246 (1944). Thus, in Armstrong v. Maple Leaf Apartments,

Ltd., 436 F. Supp. 1125, 1145-46 (N.D. Okla. 1977), a United

States statute—not jusi a regulation—was held unconstitutional

as applied since it never was codified in the United States Cod:,

did not appear in United States Code Annotaied and, “[t]here

is no evidence in the record that the defendants had actu:l

notice or knowledge of this Act or its contents prior to the filing

of this action.”

Application of these basic constitutional standards to price

control statutes and regulations is beyond doubt. See, e.g.,

United States v. Cohen Grocery Co., 255 U.S. 81 (1921);

Federal Power Commission v. Texaco Inc., 417 U.S. 380, 394-

97 (1974). Indeed, in a case heard by another panel of the

Court below, respondent was warned that its entire system of

price control regulations was in danger of being struck down for

vagueness and lack of notice. See Longview Refining Co. v.

Shore, 554 F.2d 1006, 1014 (T.E.C.A.), cert. denied, 434 U.S.

836 (1977). Even with its specialized knowledge of the

agency’s regulations, the Temporary Emergency Court of Ap-

peals found that “‘it is difficult, even for experts, to understand

these complex regulations, as is evidenced by the frequent

corrections, modifications, changes, and clarifying rulings.”

(554 F.2d at 1023; see also 554 F.2d at 1014) Pointedly, the

Court then referred respondent to the applicable law:

Fundamental fairness requires that the regulations be

clear so that men of common intelligence need not

guess at the meaning and differ as to the application.

{Citations omitted] One can have knowledge of a

legal duty imposed by regulations only when there is

adequate notice. (554 F.2d at 1014 n.20)

beds Piccteis PE Otse

aL TE al Ae atid TR ai thy ot Sa

The majority’s decision fails to comply with this standard

in Longview or prior decisions of this Court. If regulations

which are vague or are issued without proper notice are invalid,

then it certainly must follow that enforcement of regulations

which did not even exist also offends due process.

The majority not only failed to apply the proper legal

standards but they did not even comprehend the problem. The

majority’s opinion states merely that the Emergency Petroleum

Allocation Act and the agency’s regulations, taken as a whole,

“were not so vague that a due process violation occurred.”

(App., 9a) Getty did not argue that the agency’s regulations

violated due process in their entirety, but only that non-existent

price control regulations were unconstitutional as applied to

Getty’s solvents.

2. There is a Conflict Within The Temporary Emergency

Court of Appeals Regarding the Scope of the Agency’s

Discretion, an Issue That is Important to Administration

of the Nation’s Energy Laws

The majority’s decision below is contrary to and cannot be

reconciled with the decisions of other panels of the Temporary

Emergency Court of Appeals concerning the agency’s discretion

to determine what products are subject to its price controls. See

Mobil Oil Corp. v. FEA 566 F.2d 87 (T.E.C.A. 1977); Con-

sumers Union vy. Sawhill, 512 F.2d 1112, vacated, 525 F.2d

1068 (T.E.C.A. 1975); cf. Marathon Oil Co. v. FEA, 547 F.2d

1140 (T.E.C.A. 1976), cert. denied, 430 U.S. 983 (1977). Now

that the agency’s discretion is denied by the majority below, the

scope of that discretion has become such an important question

to the administration of the Nation’s energy laws that it should

be considered by this Court.

In the Mobil case, the issue was whether the agency, in the

exercise of its discretion granted. by the Emergency Petroleum

Allocation Act, could control prices of liquid petroleum pro-

ducts recovered from natural gas wells, including condensate,

natural gas liquids and various natural gas liquid products. The

court rejected Mobil’s claim that FEA had no jurisdiction over

these liquid petroleum products, stating that, ‘“‘Mobil’s construc-

tion of FEA jurisdiction under the Act ignores the broad powers

and administrative flexibility implied by the comprehensive

purposes of the Act.” 566 F.2d at 97. Thus, as Judge Zirpoli

stated in his dissent, “the basis of the decision in Mobil was this

court’s recognition that Congress intended to grant the agency

broad discretion in carrying out its mandate and that the agency

was empowered to decide, subject to judicial review, which

products it was necessary to regulate.” (App., 13a; emphasis

added )

In Consumers Union, the Temporary Emergency Court of

Appeals, en banc, upheld FEA’s discretion to exempt certain

classes of crude oil from price regulation. Read together with

Mobil, this case thus demonstrates that the agency had the

discretion either to control or not to control the price of various

products.

In Marathon, the issue was whether the agency could

require suppliers of petroleum products to continue their nor-

mal credit practices. Again, the Temporary Emergency Court

of Appeals analyzed the discretionary powers of the agency and

“explicitly recognized that the agency has been assigned a task

of such enormity that Congress must have intended it to devise

a wide range of reasonable means for carrying out its Statutory

duty.” (App., 13a) See also Condor Operating Co. v. Sawhill,

514 F.2d 351 (T.E.C.A.), cert. denied, 421 U.S. 976 (1975).

The majority purported to rely upon Mobil, Marathon,

Consumers Union and Condor to support their determination

that certain of the agency’s duties were not just discretionary, as

those decisions held, but mandatory. But even the agency

contended in this case that its decision whether to control

solvent prices was discretionary. ( Supra, at 13-14) No party to

this case urged the position that the majority adopted.

Whether the agency has, as it claims, the discretion to

interpret the scope of jurisdiction granted to it by Congress is

important to the administration of the Nation’s energy laws.

5 pi ty

tt Res aie cit a, Hs ital GAs ia eps aAIS h

The majority’s decision denies the existence of any such dis-

cretion. Getty respectfully submits that whether or not such

discretion exists is such a plainly important issue that it should

be considered by this Court.

3. This Court Should Decide the Novel Question of Whether

Getty was Bound to Abide by Regulations that the Agency

Should Have Issued But Did Not

Both the majority and District Court opinions below

misapplied existing law to hold that Getty was bound to abide

by regulations that the FEA should have issued but did not. In

support of this strange but immaterial proposition, the District

Court cited cases holding that an agency’s regulations are void

if they are beyond the scope of its authority. See Real v. Simon,

510 F.2d 557, 564 (Sth Cir. 1975); Federal Maritime Commis-

sion v. Anglo-Canadian Shipping Co., 335 F.2d 255 (9th Cir.

1964). It scarcely follows from those cases, however, that if an

agency does not do what it is supposed to do, then the

regulation that the agency should have issued can be enforced

retroactively. It is one thing to hold that a regulation is void

and unenforceable; it is quite another thing to hold that the

absence of a regulation was void and therefore enforce the non-

existent regulation.

To the best of Getty’s knowledge, it is a novel question

whether an agency can enforce a regulation the absence of

which was “void”. Consumers Unic’ relied upon by the

majority, actually did not address this question. As Judge

irpoli stated in his dissent, Consumers Union “did not even

hint that the agency, having failed to place a ceiling on the price

of new oil, could, by virtue of its mandatory duty to do so,

retroactively impose such a ceiling and seek to collect the

‘overcharges’ from every crude oil producer in the country.”

(App., 12a) Consumers Union does illustrate the incredible

ramifications of the retroactivity issue, however, by indicating

the extent to which the majority’s decision will disrupt the entire

petroleum industry when applied to other products.

Because of the general importance of the issue to adminis-

trative law, particularly as applied to agencies like the Federal

Energy Administration and Department of Energy which

repeatedly have violated their statutory obligations,'s Getty

respectfully suggests that the propriety of retroactively rewriting

regulations, as done by the majority below, should be consid-

ered by this Court.

4. The Majority’s Decision Will Impede Solutions to the

Nation’s Energy Problems and Inundate the Federal

Courts with Unnecessary Litigation

The majority’s decision ushers in a period of uncertainty

for every person subject to the agency’s regulations. The only

fact that is clear from the majority’s opinion is that this

uncertainty will impede solutions to the Nation’s energy prob-

lems, generate considerable unnecessary litigation and further

burden the federal courts. '6

The majority held that persons can be held to have

violated regulations that did not exist and that it can retro-

actively rewrite the agency’s regulations. It is one thing for a

company to affirmatively rely upon a governmental regulation

and know that if the regulation is declared invalid then its

reliance was misplaced. The uncertainty is magnitudes greater

where, as the majority held below, regulations can spring out of

thin air and retroactively require conduct that had not pre-

viously been controlled. What other products, unnamed in the

statutes or regulations, may now be subject to retroactive price

controls?

At stake are not just pricing policies but the fundamental

business plans of the regulated companies. The $3 million that

Getty stands to lose as a direct consequence of the majority’s

'S See, e.g., Standard Oil Co. vy. FEA, 453 F. Supp. 203 (N.D.

Ohio 1978), appeal pending; Phillips Petroleum Co. v. DOE, 449 F.

Supp. 760 (D. Del. 1978), appeal pending; and Shell Oil Co. v. FEA,

527 F.2d 1243 (T.E.C.A. 1977).

‘6 The federal courts have exclusive jurisdiction over all claims

arising under the Emergency Petroleum Allocation Act and most of

the Nation’s other energy legislation.

= rere.

decision, even though substantial to Getty, is small compared to

the cost of capital investments that Getty and other companies

must decide whether to make in coming years. For example, a

modern refinery large enough to be reasonably efficient costs

more than $1 billion to construct. When the economic feasibi-

lity of investments of that magnitude are being considered,

uncertainties of the kind that the majority opinion generate are

enough to deter regulated companies from proceeding.

The inevitable result of this uncertainty is much less private

investment than is wise and much more litigation than is

necessary. The quest for certainty inevitably will lead regulated

persons to the federal courts. The uncertainty that emanates

from decisions such as those below will drive them from

producing energy into other lines of business.

5. The Majority’s Disregard of the District Court’s Factual

Findings So Far Departs From the Accepted and Usual

Course of Judicial Proceedings as to Require the Exercise

of this Court’s Supervisory Powers -

Getty has been held liable for roughly $3 million and faces

critical comment from the press and public without ever

receiving an opportunity to present its case at trial—either in

the federal courts or in the agency. Nevertheless, the Tempo-

rary Emergency Court of Appeals felt free to adopt factual

_ “findings” made by the agency and to disregard contrary

findings by the District Court. In so doing, the Court of

Appeals “has so far departed from the accepted and usual

course of judicial proceedings... as to call for an exercise of

this court’s power of supervision.” Sup.Ct.R. 19.1(b).

The theory upon which the Court of Appeals decided the

case depended upon factual “findings” made by the

_ agency—without trial—that the District Court rejected. The

agency contended that Getty knew or should have known that

the FEA’s true intention was to control solvent prices. ( Supra,

at 8-12) The District Court disagreed, stating:

—

The court does not mean to attribute any degree of

bad faith to Skelly for its interpretation of the April 5,

1974 regulation, and it would agree that “Skelly is not

@ seer nor can it divine the intent of FEA underlying

its own regulatory definitions.” ( App., 26a; emphasis

added )

The Court of Appeals purported to rely upon the “findings —

of fact” made by the District Court (App., 2a) but actually

reverted to the contrary “findings” made by the agency to

justify its decision. Thus, the District Court found that Getty

could not have determined “the intent of FEA underlying its

own regulatory definitions,” but the Court of Appeals held that

Getty did have notice of the agency’s intentions:

the existence of the allocation regulation was ade-

quate and fair notice to the appellant that the sol-

vents in issue were covered products the price of

which was regulated. (App., 8a)

As Judge Zirpoli demonstrated, this conclusion was inconsistent

not only with the express finding by the District Court but also

with the agency’s allocation regulations and the understanding

of counsel for the agency. (Supra, at 9-12: App., 13a-14a)

The proceedings to which Getty has been subjected were

completely improper. The majority had no basis for adopting

factual findings made by the agency which were not the product

of any evidentiary hearing, especially findings contrary to those

made by the District Court (also without trial). More

fundamentally, if the theory relied upon by the Court of

Appeals was correct (i.e, that Getty was bound to follow

regulations that it knew or should have known the agency

intended to issue), then the case should not have been decided

by way of summary judgment. Instead, upon adopting its novel

theory, the Court of Appeals should have remanded the action

for determination at trial of what Getty knew or should have

known.

ee ee ee eS oe ee eS re

These are not minor errors. They go to the very founda-

tion of American Jurisprudence. If the Temporary Court of

Appeals is to properly perform its functions, in the accepted and

usual manner that this Court requires of the regular circuit

courts of appeal, then this Court promptly should exercise its

power of supervision and reverse the majority’s decision.

CONCLUSION

Petitioner Getty Oil Company respectfully submits that a

writ of certiorari should issue and that the majority decision of

the Temporary Emergency Court of Appeals affirming sum-

mary judgment for respondents should be reversed.

WILLIAM E. WICKENS

WILLIAM SIMON

W. DONALD DRESSER

Howrey & SIMON

1730 Pennsylvania Avenue, N.W.

Washington, D.C. 20006

C. LANSING Hays, Jr.

Davip A. Ross

Hays & LANDSMAN

11 Broadway

New York, New York 10004

Attorneys for Petitioner

Getty Oil Company

Of Counsel:

KATHLEEN A. O’CONNOR

3810 Wilshire Boulevard

Los Angeles, California 90010

Dated: October 11, 1978

l-a

APPENDIX

TEMPORARY EMERGENCY COURT OF

APPEALS OF THE UNITED STATES

BY Soe. eee ed He

a Ps

No. 10-14

Getry O11. COMPANY,

Appellant,

DEPARTMENT OF ENERGY, AND JAMES R. SCHLESINGER,

SECRETARY OF ENERGY,

Appellees.

Appeal from the

United States District Court

For The Northern District of Oklahoma

A th Be eB po “ey z

(Argued January 13, 1978 Decided July 18, 1978)

WILLIAM E. WICKENS, with whom William Simon and

Frederick S. Frei, Howrey & Simon, Washington, D.C.;

Richard J. Dent, Tulsa, Oklahoma and Kathleen A. O’Connor,

Los Angeles, California, of counsel, were on the brief for the

Appellant.

MARY ANN CLIFFORD, with whom Barbara Allen Bab-

cock, Assistant Attorney General and Dennis G. Linder,

Department of Justice, Washington, D.C., were on the brief for

the Appellees.

2-a

Before BECKER, CARTER and ZIRPOLI, Judges.

BECKER, Judge:

The writing of this opinion was reassigned after the

original assignment.

This is an appeal from a final summary judgment granted

on motion of the appellees, defendants in the action in the

United States District Court for the Northern District of

Oklahoma. When the motion of appellees for summary

judgment was granted, an order was entered denying the

contemporaneous motion of appellant for summary judgment.

The findings of fact and conclusions of law of the District Court

are stated in a lucid published opinion of The Honorable H.

Dale Cook, United States District Judge for the Northern

District of Oklahoma. Skelly Oil Co. v. Federal Energy Adminis-

tration, et al., (N.D. Okla. 1977), 448 F. Supp. 16.

We affirm the judgement of the District Court.

Getty Oil Company (Getty) has succeeded to the interests

of Skelly Oil Company (Skelly) by merger. Pursuant to Rule

43 F.R. App. P., on the motion of Getty, Getty is hereby

substituted as appellant for Skelly.

The original defendants were the Federal Energy Adminis-

tration (FEA), Frank G. Zarb, Administrator of FEA (Admin-

istrator), and Melvin Goldstein, Director Office of Exceptions

and Appeals of FEA. Because of creation of the superseding

Department of Energy (DOE) and the succession of James R.

Schlesinger, Secretary of Energy (Secretary) to Frank G. Zarb,

Administrator, DOE is hereby substituted for FEA and James

R. Schlesinger, Secretary, is hereby substituted for Frank G.

Zarb, Administrator of FEA as appellees herein. Melvin

Goldstein, Director of The Office of Exceptions and Appeals is

dismissed as a party because his joinder as a defendant below

was unnecessary and inappropriate.

The action below was commenced by the filing by Skelly

of a “Complaint for Review of Administrative Action and

{

3-a

Declaratory Judgment” (R. 1-38). Defendants filed an answer

consisting of three defenses, including failure to exhaust admin-

istrative remedies, and a prayer for general relief (R. 74-81).

Jurisdiction of the District Court, and of this Court on appeal, is

not controverted, and is established.

The materials submitted in support of the motion of

appellant for summary judgment (R. 82, 83) consisted of the

pleadings, identified documents, and an affidavit of Edward D.

Evans, Chief Chemist of Skelly (R. 128-130) with exhibits

attached thereto (R. 130-335).

The cross-motions of appellees for summary judgment (R.

133, 134) relied on the pleadings, identified documents, and the

affidavits of J. Lisle Reed, then Director of the Office of Oil and

Gas of the FEA (R. 189-209) and of Lon W. Smith, then

Acting Director of Case Resolution, Office of Compliance of

FEA (R. 336-337), with the exhibit attached thereto (R. 338-

362) consisting of a judicial opinion.

Appellant filed motions to strike the affidavit of Lon W.

Smith (R. 363, 364) and the affidavit of J. Lisle Reed (R. 365,

366) on the generally stated grounds that each contained

irrelevant and self-serving testimony, opinions and conclusions,

facts not within the personal knowledge of the affiants, and on

the general ground that affiants were not competent to testify to

the matters in their affidavits if called to testify. In the

alternative the District Court was requested to disregard the

unspecified “offensive” portions of the affidavits, which alterna-

tive request the District Court granted.

THE CLAIM OF APPELLANT FOR RELIEF

In its complaint, Skelly, predecessor of appellant Getty,

states that it sold solvents (“‘Skellysolves”) manufactured at its

refinery, and purchased by it, during the period from January

15, 1974, until the filing of the complaint on June 1, 1976.

These solvents derived from petroleum are described as “rela-

tively pure hydrocarbon fractions derived from further proces-

4-a

sing of a hydrocarbon fraction that boils in the range of 80-450

degree Fahrenheit” (Appellant’s Br. 3, R. 128-219). This

fraction which boils at 80-450 degrees Fahrenheit is admittedly

known by the generic name “‘Naphtha” (Appellant’s Br. 3, R.

128, 195). Naphtha is one of several petroleum “distillates”

(Appellant’s Br. 3, R. 129, 192-193). Appellant contends that

““Naphtha” and “Special Naphtha” are “different things” when

the terms are used in the petroleum industry, FEA regulations,

and federal statutes, and that the term Naphtha excludes

special Naphtha solvents such as Skellysolves, the subject of

this appeal.

The term “refined petroleum products” is defined in Title

15, U.S.C. § 752(5) of the controlling Emergency Petroleum

Allocation Act of 1973 (EPAA) as follows: “... gasoline,

kerosene, distillates (including Number 2 fuel oil), LPG,

refined lubricating oils, or diesel fuel.”

In its complaint, Skelly further stated that on January 15,

1974, when the pricing regulations of the Federal Energy Office

(FEO), the predecessor of FEA (10 C.F.R. Part 212, §

212.31), became effective, Skelly construed its Skellysolves as

covered products and priced them accordingly (R. 3). After

FEO amended its definition of covered products, effective May

1, 1974, contained in 10 C.F.R. § 212.31, supra, by deleting any

reference to the Standard Industrial Classification Manual,

Industry Code 1311, Skelly no longer priced its products as

covered products (R. 3).

Skelly admitted that on November 4, 1974, it received a

Notice of Probable Violation (NOPV) of 10 C.F.R. § 212.82

and § 212.83, resulting from its alleged misconstruction of 10

C.F.R. § 212.31, supra. Skelly’s administrative contest of this

NOPV ensued. On November 24, 1975, FEA issued to Skelly a

Remedial Order, finding explicitly that the solvents in issue

were “covered products” from May 1, 1974 to January 15,

1975, the period in issue in this action (Appellant’s Br. 6, R. 4,

419). An unsuccessful administrative appeal from the merits of

the Remedial Order followed.

’

5-a

This Remedial Order required Skelly to refund $2,954,000

and interest to purchasers during that period ( Appellant’s Br. 6,

R. 219). On appeal, the portion of the latter Remedial Order

for restitution was remanded for recalculation. Otherwise,

Skelly’s appeal was denied (Appellant’s Br. 6, R. 25-38).

On January 16, 1975, 10 C.F.R. § 212.31 was again

amended expressly to include “special naphthas (solvents )”

(R. 8, 40 Fed. Reg. 2795).

THE DECISION OF THE DISTRICT COURT

As shown in detail in its published opinion reported in 448

F. Supp. 16, supra, the District Court concluded (1) that the

Emergency Petroleum Allocation Act of 1973 (EPAA), Title

15, U.S.C. § 751, et seg., covered solvents of appellant in the

category of “refined petroleum products”; (2) that the EPAA

imposed a mandatory, nondiscretionary duty to promulgate a

regulation to allocate and control prices of all products covered

by regulation at the time that EPAA was enacted; that, to the

extent the amended regulation of April 5, 1974, purported to

exempt the solvents in issue without formal action complying

with the procedures of Title 15, U.S.C. § 760a, it was void.

(The President has since taken formal action under § 760a to

except the solvents in question from regulation under the EPAA

(Appellant’s Br. 6).)

THE ISSUES PRESENTED

In its original brief (page |) appellant describes the issues

presented as follows:

I. Does the Emergency Petroleum Allocation Act of

1973 confer authority upon the Federal Energy

Administration to regulate the price of the solvents

which are the subject of this appeal?

6-a

II. If the Emergency Petroleum Allocation Act of 1973 _

does authorize the Federal Energy Administration to —

regulate the price of the solvents which are the ~

subject of this appeal, is that authority mandatory ©

and non-discretionary or implied and discretionary? —

III. Did the Federal Energy Administration fail to ex-

ercise such authority during the relevant time period

and, if so, does that failure preclude a holding that

appellant violated the price regulation?

DECISIONS ON THE ISSUES

I and Il

Since we agree with the holding of the District Court, and

the reasoning employed in reaching its decision, that the EPAA

imposed a mandatory non-discretionary duty to regulate the

pricing and allocation of the Skellysolves, the issues I and II are

resolved in favor of appellees. Cf. Consumers Union of U.S.,

Inc. v. Sawhill, (Em. App. 1975), 512 F.2d 1112, vacated, 525

F.2d 1068; Mobil Oil Corporation v. Federal Energy Adminis-

tration, (N.D. Tex. 1977), 435 F. Supp. 983, aff’d, (Em. App.

1977), 566 F.2d 87.

The solvents in issue are clearly within the definition of

“refined petroleum products” in § 752 quoted above, which

expressly includes “distillates”. Title 15, U.S.C. § 752(5).

Appellant’s argument based on industrial usage of terms is

without merit. Mobil Oil Corporation v. Federal Energy Admin-

istration, supra.

The hypertechnical argument that the pricing and alloca-

tion of the solvents in issue were somehow exempted from the

mandatory coverage of the EPAA is unconvincing and unsup-

ported in the plain language of the EPAA. The intent of

Congress expressed in ordinary language prevails. Mobil Oil

Corporation v. Federal Energy Administration, supra, 566 F.2d

l.c. 97, 98.

tun Oe Da ea

7-a

Appeilant contends that the definition of “covered prod-

ucts” in the amended price regulation effective May 1, 1974, to

January 15, 1975, “exempted” and failed to cover the solvents

in issue. Its contention is based on an obvious minor defect in

drafting a subordinate definition of “middle distillates” in

amended 10 C.F.R. § 212.31 covering pricing ‘“‘Réfined petro-

leum products.” Appellant concedes that the deficiency in the

definition was supplied before May 1, 1974, and after January

15, 1975, by reference to “covered product” as any product

described in the Standard Industrial Classification Manual,

Industry Code 1311 (except natural gas).

Under the controlling decisions of this Court cited above,

the statute directing mandatory control of the solvents in issue

made any deficiency in the regulation 10 C.F.R. § 212.31

immaterial. The FEO and the FEA had no power to “exempt”

any covered products by regulation. The power to exempt

products covered by the EPAA was reserved to the President

and Congress and required to be exercised in the manner

prescribed by § 706a.

We are in full agreement with the District Court on these

constructions of the EPAA.

The third contention of appellant, that the FEA failed to

exercise its statutory authority to regulate the price of the

solvents in issue, is without merit. As a matter of law, as

concluded above, the FEA was required by the EPAA and Title

15 U.S.C. § 752 thereof, to regulate the price and allocation of

the solvents in issue. The regulations must be construed

consistently with this statutory duty. Consumers Union of U.S.,

Inc. v. Sawhill, supra, 525 F.2d |.c. 1077. The fact that the price

of the solvents in issue had been regulated under the now

expired Economic Stabilization Act is significant in construing

the EPAA and regulations issued thereunder. Mobil Oil

Corporation v. Federal Energy Administration, supra, 566 F.2d

8-a

l.c. 89. Further, the allocation of the solvents in issue was

clearly covered by the contemporaneous regulations of the

FEA. 10 C.F.R. § 211.182. The significance of this is precisely

stated by Judge Jameson in footnote 17 of National Helium

Corporation v. Federal Energy Administration, (Em. App.

1977), 569 F.2d 1137, Lc.

“National acknowledges the existence of allegation

[sic] regulations which covered natural gasoline, but

contends it cannot be deemed to have had notice of

coverage, under price regulations because the two

regulatory programs were distinct. Price regulations

and allocation regulations, however, derive from the

same authority. If National knew of allocation

regulations it should have expected the application of

price regulations as well.”

Under this rule the existence of the allocation regulation was

adequate and fair notice to the appellant that the solvents in

issue were covered products the price of which was regulated.

Judge Jameson graphically described the difficult condi-

tions under which the regulations were drafted by the Federal

Energy Office (FEO) as the expiration date of the Economic

Stabilization Act approached. National Helium Corporation v.

Federal Energy Administration, supra, 569 F.2d l.c. 1144. The

regulations must be read liberally when drafted under these

circumstances.

The question arises: By what regulation was the price of

the solvents in issue regulated? The answer is obvious. The

price regulation 10 C.F.R. § 212.83 governed the price of all

covered products. It was a general price rule in being at all

times material in this case, stated fully in understandable

narrative and symbolic equations. Appellant priced the sol-

vents in issue under this regulation before May 1, 1974, and

after January 15, 1975. Appellant wrongfully failed to price its

solvents under the price regulation in the period from May 1,

1974 to January 15, 1975.

9-a

Further, appellant relies on principles of due process and

equitable estoppel in support of its claim that the judgment of

the District Court should be reversed even if issues II and III

are ruled in favor of the appellees. We disagree for many

reasons. For to approve application of these doctrines in these

circumstances would vitiate the intent and mandate of Congress

in the enactment of the EPAA, that we and the District Court

perceive; would vitiate the doctrine of Consumers Union of

U.S., Inc. v. Sawhill, supra; and would extend the doctrines of

due process and equitable estoppel beyond the limits of the law.

There is no violation of due process in imposing price

regulation and allocation obligations in the energy emergency

or any similar emergency. Bowles v. Willingham, 321 U.S. 503,

64 S.Ct. 641, 88 L.Ed. 892 (1944); Condor Operating Company

v. Sawhill, (Em. App. 1975), 514 F.2d 35!. The EPAA and the

regulations were not so vague that a due process violation

occurred. On this issue the authorities relied on by appellant

are inapposite.

While we do not believe the elements of equitable estoppel

exist in this record, the doctrine cannot be invoked to avoid

duties lawfully imposed by Congress to protect the public

interest. Scott Paper Company v. Marcalus Manufacturing Co.,

326 US. 249, l.c. 257, 66 S.Ct. 101, lc. 105, 90 L.Ed. 47, l.c. 52;

United States v. Consolidated Mines & Smelting Co., Lid., (C.A.

9 1971), 455 F.2d 432, l.c. 446-447,

For the foregoing reasons the orders and judgment of the

District Court are affirmed.

ZIRPOLI, Judge, Dissenting:

I respectfully dissent. I cannot accept the proposition that

the EPAA imposed upon the FEA “a mandatory non-

discretionary duty” to regulate the price of the solvents at issue

here and that this court therefore need not examine the pricing

regulations to determine whether they in fact applied to

appellant’s product. While I believe that the agency has the

authority under the EPAA to regulate the price of solvents, I

10-a

consider it wholly impermissible for the agency to contend that,

while it may have failed to include such products in its pricing

regulations, the price of such products was nonetheless subject

to controls since the agency had no right to promulgate

regulations that did not include solvents.

The agency’s mandz‘ory duty to regulate the price of

solvents is presumably found in section 4(a) of the EPAA, 15

U.S.C. § 753(a), which provides in pertinent part:

[T]he President shall promulgate a_ regulation

providing for the mandatory allocation of crude oil,

residual fuel oil, and each refined petroleum product,

in amounts specified in... and at prices specified in

... Such regulation.

Having concluded that solvents fall within the scope of the term

“each refined petroleum product,” the district court merely

noted the fact that the statute appears toe require the President

to impose price controls and conciuded that the price of

solvents was ipso facto controlled, without regard to the action

taken by the agency.

The majority, in adopting the reasoning of the district

court, conveys the impression that the inclusion of solvents

within the category of refined petroleum products is a self-

evident truth. On the contrary, the power of the agency to

regulate these products, as distinguished from its duty to do so,

was a subject of vigorous dispute by the parties to this appeal.

It requires a considerable amount of interpretation to reach the

conclusion that solvents should be included within the scope of

the statute, and it is questionable whether one would reach that

conclusion at all without the benefit of the presumption that

great weight is to be accorded the agency’s interpretation of its

statutory mandate. It is precisely that exercise of agency

expertise, its informed discretion, that led the FEA to conclude

that solvents should be regulated if the purposes of the EPAA

were to be effectuated. The agency itself, prior to the institution

of this litigation, clearly considered its regulation of solvents an

Ss ith ale ek a tie

Ll-a

exercise of discretion rather than a discharge of ministerial

obligation.

1 The affidavit of J. Lisle Reed, director of the Office of Oil and

; Gas for the FEA, submitted by the agency to the District Court in

_ support of its motion for summary judgment, makes this obvious:

During the drafting of the regulations, I paid

special attention to determining precisely the scope

Congress intended the FEO to give to the term

“refined petroleum product” in the EPAA. Section

3(5) defined “refined petroleum product” to include

“gasoline, kerosene, distillates (including Number 2

fuel oil), LPG, refined lubricating oil and diesel

fuel.” It was my belief, based on my reading of the

legislative history of the EPAA and my knowledge of

the petroleum industry generally, that the Congress

did not intend this list to be all-inclusive, and that the

Congress expected the President to exercise judgment

in determining which products Congress intended to

have subject to regulation under the EPAA. (R. 205-

06).

In addition, when drafting the initial allocation

regulations I became convinced that it was necessary

to regulate petroleum solvents in order to effectuate

several of the statutory objectives in section 4(b)(1)

of the EPAA. In particular, while I was drafting

portions of FEO’s initial mandatory allocation regu-

lations, I was informed by a representative of the

Department of Agriculture that shortages of certain

solvents ... were developing and that such shortages

threatened to disrupt soy bean oil processing and

other food processing industries dependent upon such

solvents. I believed that FEO’s failure to allocate

solvents could have made it impossible for FEO to

meet the objective in section 4(b)(1)(C) of the

EPAA to maintain agricultural operations and ser-

vices related directly thereto. (R. 208).

12-a

While the EPAA seems to impose a mandatory duty on the

President to regulate the price of “each refined petroleum

product,” the scope of that phrase is so ambiguous as to

necessarily invest the agency with a certain amount of discretion

in determining precisely what products are subject to regu-

lation. That discretion is not transformed into a mandatory

duty merely by virtue of its exercise, particularly when, as Getty

contends is the case here, that discretion is sought to be

exercised retroactively.

The cases cited by the majority provide little support for

the existence of such a mandatory duty in the context of this

case. In Consumers Union of U.S., Inc. v. Sawhill, 512 F.2d

1112 (Em. App. 1975), vacated, 525 F.2d 1068 (Em. App.

1975), this court considered the question whether the EPAA

imposed upon the agency a mandatory duty to regulate the

price of crude oil and whether that obligation was validly

discharged by permitting “new oil” to be sold at the market

price. In the first opinion of the court, it was held that the

agency had failed to perform its duty in setting the price of new

oil at the market level. A rehearing en banc was granted,

however, and this court held that the agency had acted within

the scope of its discretion in regulating the price of new oil with

reference to the free market.

Even the initial decision in Consumers Union, however, did

no more than direct the agency to establish a ceiling price. It

did not even hint that the agency, having failed to place a

ceiling on the price of new oil, could, by virtue of its mandatory

duty to do so, retroactively impose such a ceiling and seek to

collect the “overcharges” from every crude oil producer in the

country.

Mobil Oil Corp. v. FEA, 566 F.2d 87 (Em. App. 1977),

provides even less support for the majority. Mobil upheld the

right of the agency to regulate the price of natural gas liquids

against the challenge that the EPAA was not intended to apply

to such products. This court found natural gas liquids to come

within the scope of the term “refined petroleum products,” but

ul ted eile sid J

» AWA deo Se Ke

13-a

there was no indication that the agency was under a mandatory

duty to regulate in this area. On the contrary, the basis of the

decision in Mobil was this court’s recognition that Congress

intended to grant the agency broad discretion in carrying out its

mandate and that the agency was empowered to decide, subject

to judicial review, which products it was necessary to regulate.

This court has explicitly recognized that the agency has

been assigned a task of such enormity that Congress must have

intended it to devise a wide range of reasonable means for

carrying out its statutory duty. See Marathon Oil Co. v. FEA,

547 F.2d 1140 (Em. App. ), cert. denied, 430 U.S. 983, 97 S.Ct.

1679, 52 L.Ed.2d 378 (1977). That recognition cannot be

squared with the majority’s apparent conclusion that the

agency’s failure to promulgate a particular regulation does not

relieve an oil refiner of the duty to follow such non-existent

regulation since the agency had no choice but to issue such a

regulation.

If the price of solvents was subject to controls during

the period of time relevant to this appeal, then those controls

must be found in the agency’s regulations, not in the agency’s

assertedly mandatory duty to issue such regulations. While the

majority dismisses appellant’s attack on the regulations, even

the agency concedes that the pricing regulations, by their literal

terms and without any need on Getty’s part to resort to

hypertechnical obfuscation, simply failed to cover solvents. It

may well be that the agency intended to draft regulations

covering solvents, but the plain fact is that it did not do so.

The agency argues, however, that Getty was on notice of

the regulation of the price of solvents by virtue of the inclusion

of solvents in the allocation regulations.? The fact that a certain

2 Dicta supporting such a proposition may be found in National

Helium Corp. v. FEA, 569 F.2d 1137, 1145 n.17 (Em. App. 1977).

National Helium, however, dealt with the effect of pricing regulations

which, while admittedly vague and ambiguous in their coverage of

natural gas liquids, could in fact be read to apply to such products.

This court merely noted: that, in view of the clear coverage of the

Pome - >

14-a

product is covered by the allocation regulations, however, does

not lead inexorably to the conclusion that such product is also

covered by the agency’s pricing regulations. Some products

have in fact been intentionally subjected to one set of controls

but not the other. More significant, perhaps, since the question

before this court is the degree of notice Getty should be

presumed to have received from the allocation regulations, is

the fact that counsel for neither Getty nor the agency could

state with certainty at oral argument whether the pricing and

allocation regulations have always been precisely parallel. The

agency argues that Getty should have read the regulations as a

whole and thus realized that since solvents were subject to

allocation controls they were also subject to price controls.

Such an argument loses considerable force when counsel for the

agency cannot say whether any products have ever been subject

to only one set of regulations.

While this court has wisely declined to hold the agency to a

standard of “technical absolutism,” California v. Simon, 504

F.2d 430, 439 (Em. App. ), cert. denied, 419 U.S. 1021, 95 S.Ct.

496, 42 L.Ed.2d 294 (1974), the agency has not been granted

carte blanche to ignore required procedures, particularly where

such procedures are viewed as essential to the fair treatment of

regulated parties. See Shell Oil Co. v. FEA, 574 F.2d 512 (Em.

App. 1978). The agency’s failure to include solvents in its

pricing regulations for the period of time relevant to this case

cannot, in fairness to Getty, be cured in the manner approved

by the majority. I would reverse the judgment of the district

court.

products in the allocation regulations, “National ... should have

expected the application of price regulations as well.” Jd. Such an

expectation may have been reasonable in National Helium, where it

could be used to cure an ambiguity in the regulations. I fail to see in

what manner such an expectation can be attributed to Getty, when the

pricing regulations, without ambiguity, simply failed to cover solvents.

3 Naphthas used as synthetic natural gas feedstocks, for example,

are presently subject to allocation but not price controls. 10 C.F.R.

§ 210.35(d)( 1) and (2).

1S-a

IN THE UNITED STATES DISTRICT COURT FOR

THE NORTHERN DISTRICT OF OKLAHOMA

SKELLY O1L COMPANY,

Plaintiff,

vs.

No. 76-C-238-C

FEDERAL ENERGY ADMINISTRATION, ef al,

Defendants.

ORDER

This is an action brought pursuant to the Economic

Stabilization Act of 1970 (ESA), Title 12 U.S.C. $1904 note

§211, as incorporated by §5(a)(1) of the Emergency Petro-

leum Allocation Act of 1973 (EPAA), 15 U.S.C. §2201.

Plaintiff, Skelly Oil Company (Skelly) seeks judicial review of a

Decision and Order of the Federal Energy Administration,

(FEA) Office of Exceptions and Appeals, and a declaration

that the regulations of the FEA purporting to control the pricing

and allocation of solvents are “improper, illegal and in excess of

the agency’s authority.”” Now before the Court are cross-

motions for summary judgment, as well as plaintiff's motions to

strike certain affidavits filed by the defendants in support of

their motion for summary judgment.

Plaintiff has moved to strike the affidavits of Lon W. Smith

and Dr. J. Lisle Reed, on the ground that they contain

irrelevant testimony, self-serving opinions, conclusions of law

and purported facts which are not within the personal know-

ledge of the affiants. In the alternative, Skelly asks the Court to

disregard the “offensive” portions of the affidavits. Motions to

strike are not favored, Vinita Broadcasting Company v. Colby,

320 F. Supp. 902 (N.D. Okla. 1971), and plaintiff's motions are

not directed toward any specific portions of the affidavits. The

Court has read the affidavits and is of the opinion that they

certainly are not completely defective. Therefore, the Court

l6-a

will consider the affidavits insofar as the testimony contained

therein is admissible and will disregard any inadmissible mat-

ter. See Perma Research & Development Co. v. Singer Co., 410

F.2d 572 (2nd Cir. 1969).

The substantive issues raised by the cross-motions for

summary judgment arise from the following undisputed facts.

On November 27, 1973, the EPAA, 15 U.S.C. §§751 et seg. was

enacted. That statute directed the President to promulgate a

regulation allocating crude oil, residual fuel oil and refined

petroleum products by amount and price. The price of

petroleum and certain petroleum products was also being

controlled at that time by regulations promulgated by the Cost

of Living Council (CLC) pursuant to authority derived from

the ESA. The President’s authority under the EPAA and the

ESA was delegated to the Federal Energy Office (FEO) on

December 6, 1973. The FEO first published its pricing

regulations on January 15, 1974 in 10 C.F.R. Part 212. The

term “covered product” was defined in 10 C.F.R. §212.31 as

follows:

“*Covered product’ means a product described in the

1972 edition, Standard Industrial Classification Man-

ual, Industry Code 1311 (except natural gas), 1321,

or 2911.”

At that time, Skelly began to treat its solvents, which are the

products at issue in this case, as “covered products” for

purposes of the regulation and priced them accordingly. On

February 4, 1974, 10 C.F.R. § 212.31 was amended to read as

follows:

‘“*Covered products’ means a product described in

the 1972 edition, Standard Industrial Classification

Manual, Industry Code 1311 (except natural gas),

1321 (except ethane) or 2911 (including benzene

and toluene, but excluding ortho-xylene, meta-

xylene, dara-xylene and butadienes ), and all forms of

benzene and toluene.”

17-a

Skelly continued to price its solvents in accordance with this

regulation. On April 5, 1974, 10 C.F.R. § 212.31 was again

amended by the FEO to read as follows:

““*Covered products’ means crude oil, residual fuel

oil and refined petroleum products.”

“Refined petroleum product” was defined at that

time as follows:

‘Refined petroleum product’ means gasoline, kero-

sene, middle distillates (including Number 2 fuel

oil), LPG, refined lubricating oils, or diesel fuel.”

Skelly determined that its soivents did not fall within this

definition of “covered products”, ard effective May 1, 1974,

Skelly began to price its solvents as non-covered products. In

June 1974, pursuant to the Federal Energy Administration Act

of 1974, the FEA was created and assumed the regulatory

duties previously exercised by the FEO. On October 31, 1974,

the FEA issued a Notice of Probable Violation (NOPV) to

Skelly, in which it took the position that solvents remained

“covered products” under the April 5, 1974 amendments to the

regulations and that Skelly was in violation of the regulations

by treating its solvents as non-covered after May 1, 1974. On

November 12, 1974 Skelly filed with the FEA its reply to the

NOPV, in which it made essentially the same arguments now

urged upon this Court. On January 16, 1975, 10 C.F.R. §

212.31 was again amended to read as follows:

““*Covered products’ means aviation fuels, benzene,

butane, crude oil, gas oil, gasoline, greases, hexane,

kerosene, lubricant base oil stocks, lubricants,

naphthas, natural gas liquids, natural gasoline, No. |

heating oil and No. 1-D diesel fuel, No. 2 heating oil

and No. 2-D diesel fuel, No. 4 fuel oil and No. 4-D

diesel fuel, propane, residual fuel oil, special

naphthas (solvents), toluene, unfinished oils, xylene,

and other finished products. A blend of two or more

PARK Nr ee

18-a

particular covered products is considered to be that

particular covered product constituting the major

proportion of the blend.”

Following this amendment, Skelly once again began to price its

solvents as covered products. On November 24, 1975, the FEA

issued a Remedial Order to Skelly, in which it again found that

solvents were “covered products” between May 1, 1974 and

January 14, 1975. Skelly was ordered to refund to purchasers

of its solvents during that time period a total of approximately

$2,594,000.00, plus interest. On December 4, 1975, Skelly filed

with the FEA its appeal from the Remedial Order. The appeal

was denied in all material respects by the FEA’s Office of

Exceptions and Appeals on March 19, 1976. It is this decision

by the FEA which Skelly now asks this Court to review.

In considering the validity of the regulation in question,

this Court is limited to a determination of whether the regu-

lation is in excess of FEA’s authority under the EPAA, is

arbitrary or capricious, or is otherwise unlawful under the

criteria set forth in Title 5 U.S.C. § 706(2). Air Transport

Association of America v. Federal Energy Office, 382 F. Supp.

437 (D.C. 1974), affirmed 520 F.2d 1339 (Em. App. 1975).

Skelly’s first contention is that the FEA does not have the

statutory authority under the EPAA to regulate the pricing of

solvents. Such authority, if it exists, would arise from Title 15 §

753(a), which provides in pertinent part as follows:

“ .. [T]he President shall promulgate a regulation

providing for the mandatory allocation of crude oil,

residual fuel oil, and each refined petroleum pro-

Title 15 § 752(5) defines “refined petroleum product” as

follows:

“The term ‘refined petroleum product’ means gaso-

line, kerosene, distillates (including Number 2 fuel

oil), LPG, refined lubricating oils, or diesel fuel.”

19-a

All parties agree that if solvents are within the scope of ,the

EPAA, it would be as “refined petroleum products”, and

further as “distillates”. The issue is therefore whether Congress

intended the term “distillates” to encompass solvents.

In interpreting the authority granted by the EPAA, Title 15

U.S.C. § 753(a) must be read together with the objectives

which the exercise of that authority is to accomplish. Cities

Service Company v. Federal Energy Administration, 529 F.2d

1016 (Em.App. 1975). This is merely an extension of the well-

settled doctrine that a statute should be read, “... assuming

that is susceptible of either of two opposed interpretations, in

the manner which effectuates rather than frustrates the major

purpose of the legislative draftsmen.” Shapiro v. United States,

335 US. 1, 31, 68 S.Ct. 1375, 92 L.Ed. 1787 (1948), rehearing

denied 335 U.S. 836, 69 S.Ct. 9, 93 L.Ed. 388 (1948). See also

Shultz v. Louisiana Trailer Sales, Inc., 428 F.2d 61 (Sth Cir.

1970), cert. denied, 400 U.S. 902, 91 S.Ct. 139, 27 L.Ed. 2d 139

(1970). The major purpose of the EPAA is expressed in Title

15 U.S.C. § 751(b), which provides:

“The purpose of this chapter is to grant to the

President of the United States and direct him to

exercise specific temporary authority to deal with

shortages of crude oil, residual fuel oil, and refined

petroleum products or dislocations in their national

distribution system. The authority granted under this

chapter shall be exercised for the purpose of min-

imizing the adverse impacts of such shortages or

dislocations on the American people and the domes-

tic economy.”

This purpose is to be accomplished through regulations, which

Congress intended to provide for:

“(A) protection of public health (including the pro-

duction of pharmaceuticals ), safety and welfare (including

maintenance of residential heating, such as individual

‘

20-a

homes, apartments and similar occupied dwelling units),

and the national defense;

(B) maintenance of all public services (including

facilities and services provided by municipally, coopera-

tively, or investor owned utilities or by any State or local

government or authority, and including transportation

facilities and services which serve the public at large);

farming, ranching, dairy, and fishing activities, and ser-

vices directly related thereto;

(D) preservation of an economically sound and com-

petitive petroleum industry; including the priority needs to

restore and foster competition in the producing, refining,

distribution, marketing, petrochemical sectors of such in-

dustry, and to preserve the competitive viability of inde-

pendent refiners, small refiners, nonbranded independent

marketers, and branded independent marketers;

(E) the allocation of suitable types, grades, and

quality of crude oil to refineries in the United States to

permit such refineries to operate at full capacity;

(F) equitable distribution of crude oil, residual fuel

oil, and refined petroleum products at equitable prices

among all regions and areas of the United States and

sectors of the petroleum industry, including independent

refiners, small refiners, nonbranded independent market-

ers, branded independent marketers, and among all users;

(G) allocation of residual fuel oil and refined petro-

leum products in such amounts and in such manner as may

be necessary for the maintenance of, exploration for, and

production or extraction of —

(i) fuels, and

(ii) minerals essential to the requirements of the

United States, and for required transportation related

thereto;

2\l-a

(H) economic efficiency; and

(I) minimization of economic distortion, inflexibility,

and unnecessary interference with market mechanisms.”

Title 15 U.S.C. § 753(b)(1).

The legislative history of the EPAA, as well as the

language of the Act itself, are the best indications of the intent

of Congress regarding the scope of the EPAA. Skelly does not

seriously contend that solvents are not refined from petroleum;

rather, its argument is based primarily upon technical defini-

tions of “distillates”, under which it contends solvents do not

fall. (See affidavit of Edward D. Evans). However, Congress

expressly rejected such technical restrictions on the definition of

“distillates”.

“Special mention should be made of the term

“refined petroleum product” which is taken from the

House amendment. This term is defined to mean

kerosene, gasoline, distillates (including Number 2

fuel oil), LPG (as further defined to mean propane

and butane), refined lubricating oils, or diesel fuel.

... It is understood that the term “distillates” when

applied in a technical sense would encompass only

Numbers 1, 2, and 4 fuel oils. It is the committee’s

intent, however, that this terni also reach to include

naptha (sic) and benzene so as to require the alloca-

tion of these products as may be necessary to accom-

plish the objective of restoring and fostering com-

petition in the petrochemical sector of industry. In

this respect the conference committee wishes to em-

phasize that, in expressing congressional concern with

fostering competition in the petrochemical industry,

the committee intends to also identify petrochemical

feedstock needs as important end-uses for which

allocation should be made.”

Conference Report 93-628, 1973

U.S. Code Cong. & Admn. News, p. 2693.

ses wee

;

22-a

Skelly argues that Congress did not intend the terms “naphtha”

and “benzene” to include solvents because those substances

“generally” or “most commonly” have other uses. (See

affidavit of Edward D. Evans). However, even a cursory

review of industry and lay publications indicates that those

terms are commonly understood to include solvents. Webster's

Third New International Unabridged Dictionary (1971) defines

“naphtha” as “any of various volatile often flammable liquid

hydrocarbon mixtures used chiefly as solvents and diluents and

as raw materials for conversion to gasoline.” “Benzene” is also

defined as having a chief use as a solvent. In Guthrie,

Petroleum Products Handbook (\st ed. 1960), “naphtha” is

defined as “[l]iquid hydrocarbon fractions, generally boiling

within the gasoline range, recovered by the distillation of crude

petroleum. Used as solvents, dry-cleaning agents, and charge

stocks to reforming units to make high-octane gasoline.” The

same term is defined in Langenkamp, Handbook of Oil Industry

Terms and Phrases (1974) as “[a]j volatile, colorless liquid

obtained from petroleum distillation; used as a solvent in the

manufacture of paint, as dry-cleaning fluid, and for blending

with casinghead gasoline in producing motor gasoline.” The

terms “naphtha” and “solvent” are used interchangeably in

Nelson, Petroleum Refining Engineering (4th ed.). The EPAA

itself provides, in Title 15 U.S.C. § 753(a), that the mandatory

allocation shall extend to “each refined petroleum product.”

The Conference Committee emphasized the all-inclusive scope

of the products intended to be regulated when it said:

“It is the Committee’s understanding that an alloca-

tion program, if it is to work at all, must be com-

prehensive in scope and therefore must include the

major refined components of a barrel of crude oil.”

Id. at 2697.

Skelly has, through the affidavit of its chief chemist, described

the importance of its solvents to the national economy.

“Skellysolves are used by many industries in a variety

of ways. They are used in the vegetable oil extraction

23-a

industry for extracting materials such as soybean oil,

cottonseed oil, and other edible and non-edible oils

and greases. The pharmaceutical industry uses

Skellysolves in the extraction of vitamins and hor-

mones and as solvents for certain edible waxes.

Some Skellysolves are sold as laboratory reagents for

a variety of laboratory applications. The rubber

industry uses Skellysolves for rubber solvents, special

rubber cements and for chemical processing appli-

cations. These solvents are also used for such

applications as the preparations of sealants for cans,

adhesives for home and industrial tapes, printing

inks, home and industrial wax preparations, polishes

and cloth impregnation chemicals. The paint and

varnish industry uses a number of Skellysolves for

thinners and diluents. Skellysolves are also used in

the dry cleaning industry and for metal and tool

cleaning and degreasing .... [T]hey are favored for

industrial applications such as oil extraction, chemical

processing and dry cleaning.” Affidavit of Edward D.

Evans at p. 2-3.

Based upon the Congressional declarations of the com-

prehensive nature of the products covered by the EPAA, the

existence of definitions of “naphtha” and “benzene”, available

to Congress at the time the Act was passed, which indicate that

those products are used as solvents, and Skelly’s own state-

ments as to the importance of solvents to the national economy,

this Court has concluded that the major purpose and goals of

the EPAA would clearly be advanced by a construction of the

Act which places solvents in the category of “refined petroleum

products” and that such purpose and goals would be frustrated

by attributing to Congress a contrary intent. It is therefore the

determination of the Court that solvents are covered by the

mandatory allocation provisions of Title 15 U.S.C. § 753.

Skelly argues that “[{i]f FEA had the authority to regulate

solvents during the period April 5, 1974, to January 16, 1975, it

2 et

24-a

expressly failed to exercise such authority .... ” Skelly initially

recognized the FEA’s “authority” to regulate solvents, and it

priced its solvents as “covered products” beginning with the

January 15, 1974 regulations. However, it contends that with

the amendment of April 5, 1974, the FEO removed solvents

from the list of “covered products” and in effect exempted them

until January 16, 1975, when Skelly again began pricing its

solvents as “covered products”. By construing the FEA’s

responsibility under the EPAA as “authority to regulate”,

Skelly has misinterpreted the Act. Title 15 U.S.C. § 753(a)

provides that “...the President shall promulgate a regulation

providing for the mandatory allocation... ”of the relevant

products, in this case solvents. The Act thus imposes a

mandatory, nondiscretionary duty to promulgate a regulation

allocating petroleum products. Consumers Union of United

States, Inc. v. Sawhill, 512 F.2d 1112 (Em.App. 1975), vacated

on other grounds 525 F.2d 1068 (Em.App. 1975). This duty

extends to all products covered at the time the EPAA was

enacted, including solvents. Products can be exempted from

the coverage of the act only by Congress after the procedures

specified in Title 15 U.S.C. § 760a have been complied with.

Those procedures include a Presidential finding that such

exemption will not have an adverse impact on the supply or

price of any petroleum product and will not be inconsistent with

the attainment of the stated objectives of the Act. There is no

contention in this case that such a procedure was utilized to

exempt solvents from the coverage of the EPAA. It is well

settled that the authority of an administrative agency to

promulgate regulations is limited by the statute authorizing the

regulations, and that regulations which exceed Congressional

authority are void. Real v. Simon, 510 F.2d 557 (Sth Cir.

1975), rehearing denied, 514 F.2d 738 (Sth Cir. 1975); Federal

Maritime Commission v. Anglo-Canadian Shipping Co., 335

F.2d 255 (9th Cir. 1964). Thus, to the extent that the FEO’s

regulation of April 5, 1974 purported to exempt solvents from

the EPAA without complying with Title 15 U.S.C. § 760a, it

was in excess of Congressional authority and therefore void.

25-a

See Consumers Union of United States, Inc. v. Sawhill, supra.

In its Memorandum in Support of its Motion for Summary

Judgment, Skelly twice recognizes the possibility that the

purported exemption was unlawful:

“It appears that FEA further reasons that solvents,

had they been exempted by the April 5 amendment,

should have, a fortiorari, appeared in the list in

Section 210.34(a) as exempt products. If this were

not the case, then FEA would have, by its own words,

unlawfully exempted solvents from the coverage of

its pricing regulations. Skelly suggests that not only is

this observation fully within the realm of possibility,

but it probably is an apt characterization of what

actually occurred.” Skelly Memorandum, p. 25.

“It appears to Skelly that in the confusion surround-

ing the transition from those products regulated

under the ESA to those regulated under the EPAA,

solvents were deleted from the definition of the term

“covered products”. Perhaps this omission, as FEA

suggests, did result in an unlawful exemption of

solvents from FEA’s pricing regulations. In any

event, solvents were no longer covered products for

the purposes of FEA’s pricing regulations.” Jd. at p.

26.

Because solvents are within the scope of the mandatory

allocation provisions of the EPAA, the FEO and FEA had the

non-discretionary duty to include them in their definitions of

“covered products”. Solvents were so included in the first

regulations, issued January 15, 1974, and Skelly priced its

solvents as “covered products” at that time. Assuming, as

Skelly contends, that the FEO’s regulation of April 5, 1974

could be interpreted as entirely excluding or exempting solvents

from its coverage, such exemption was in excess of the FEO’s

authority and therefore void. The purported exemption being

void, it is clear that solvents remained, as a matter of law,

25-a

“covered products” between April 5, 1974 and January 16,

1975. Therefore, Skelly was incorrect in treating its solvents as

non-covered products during the period of May 1, 1974 to

January 14, 1975. The Court does not mean to attribute any

degree of bad faith to Skelly for its interpretation of the April 5.

1974 regulation, and it would agree that “Skelly is not a seer

nor can it devine the intent of FEA underlying its own

regulatory definitions.” The Court has not found it necessary to

weigh the merits of the conflicting interpretations because it has

determined as a matter of law that the FEO and FEA had a

duty to treat solvents as “covered products” in the absence of

compliance with the statutory exemption procedures defined in

Title 15 U.S.C. § 760a. The Remedial Order which is the

subject of this review does not attempt to punish Skelly for its

interpretation of the April 5, 1974 regulation; it merely seeks

from Skelly a refund of the moneys it would not have received

had the FEO and FEA clearly and correctly followed the

mandates of the EPAA. The Court is not expressing any

opinion regarding the merits of any possible future action for

civil or criminal penalties brought against Skelly based upon an

alleged violation of the April 5, 1974 regulation.

For the foregoing reasons,

IT IS ORDERED that the plaintiff's motions to strike are

overruled.

IT IS FURTHER ORDERED that the plaintiff's motion

for summary judgment is overruled and the defendants’ motion

for summary judgment is sustained.

It is so Ordered this 8th day of September, 1977.

/s/ H. Dale Cook

H. DALE COOK

United States District Judge

27-a

DEC!SION AND ORDER

OF THE FEDERAL ENERGY ADMINISTRATION

Appeal

Name of Petitioner: Skelly Oil Company

Date of filing: December 12, 1975

Case Number: FEA-0686

On December 12, 1975 the Skelly Oil Company (Skelly) filed

an Appeal from a Remedial Order which the Regional Admin-

istrator of Region VI of The Federal Energy Administration

issued to the firm on November 24, 1975. In the Remedial

Order the Regional Administrator found that during the period

May I, 1974 through January 14, 1975 Skelly acted improperly

by failing to treat certain solvents which it refined and sold as

covered products for purposes of the FEA Mandatory Petro-

leum Price Regulations. According to the Remedial Order

Skelly sold the solvents at prices which were in excess of the

maximum permissible selling prices calculated pursuant to

Sections 212.82 and 212.83 of the Mandatory Petroleum Price

Regulations. In order to remedy the violations and overcharges

found to exist the Regional Administrator directed Skelly to

refund within 45 days of the issuance of the Order approxi-

mately $2,594,000.00, plus interest, to firms which purchased

solvents from Skelly during the period of the violation. The

remedial Order also directed Skelly to prepare and maintain

records which indicate the manner in which the firm complies

with the refund requirement. Skelly’s Appeal, if granted, would

result in a rescission of the November 24 Remedial Order.

On December 17, 1975 FEA Region VI stayed the refund

requirement pending a determination of the Skelly Appeal.

I. Statutory and Regulatory Basis for the Remedial Order

Section 4(a) of the Emergency Petroleum Allocation Act of

1973 (the EPAA) directs that

“.., the President shall promulgate a regulation provi-

ding for the mandatory allocation of crude oil, residual

ee le Re Meme ht? ee, ae re

AE PTL TS

28-a

fuel oil and each refined petroleum product . . . at prices

specified in... such regulation.”

As defined in Section 3(5) of the EPAA the term “refined

petroleum products” means “ .. . gasoline, kerosene, distillates,

(including Number 2 fuel oil), LPG, refined lubricating oils or

diesel fuel.” In the Conference Report accompanying the

EPAA, the Congress stated that the term “distillates” used in

the definition of refined petroleum product should “... also

reach to include naphtha and benzene so as to accomplish the

objective of restoring and fostering competition in the

petrochemical sector of the industry.” House Report 93-628

(November 10, 1973) P. 16. The Congress therefore directed

the FEA to broadly construe the term “refined petroleum

products” to include products produced in petroleum refining

which are not specified in the technical definitions of the items.

[Since solvents are refined from crude oil in a manner analo-

gous to naphtha and other distillates and share many physical

characteristics of those products, the FEA determined that

solvents fall within the scope of products to which the Act

refers. |

In order to effectuate the requirements of the EPAA, the FEA

promulgated the Mandatory Petroleum Allocation and Price

Regulations on January 16, 1974. Section 212.83 of those

Regulations specifies the basic method which all refiners of

crude oil and refined petroleum products must use to reflect the

crude oil cost increase which they incur in the prices of the

covered products which they sell. That provision generally

provides that a refiner may recover through its sales of covered

products no more than the portion of its increased crude oil

costs which the volume of the covered products it sells bears to

the total volume of all products refined from petroleum which it

sells, subject to special provisions for propane and motor

gasoline.

When the Mandatory Petroleum Price Regulations were first

promulgated, the term “covered products” was defined in 10

y 29-a

CFR 212.31 to mean “...a product described in the 1972

edition, Standard Industrial Classification Manual, Industry

Code...2911...(39 F.R. 4466, February 4, 1974).” SIC

Code 2911 includes “naphtha produced in petroleum refi-

neries” and “solvents produced in petroleum refineries.”” How-

ever, shortly before the Economic Stabilization Act of 1970

expired, certain petroleum-based products, including asphalt,

road oil, refinery gas, petroleum wax and petroleum coke,

which had previously been subject to price regulation under the

provisions of that Act, were specifically exempted from the FEA

Price control regulations.4 As a consequence, the definition of

the term “covered products” in 10 CFR 212.31 was also

amended on April 5, 1974 to provide that:

‘Covered products’ means crude oil, residual fuel oil

and refined petroleum products.5

This definition reiterated the language in Section 4(a) of the

EPAA which defined the products for which the FEA was

required to establish price and allocation regulations. In

explaining the reasons underlying the April 5, 1974 regulatory

amendments the FEA stated:

... the authority under the Emergency Petroleum

Allocation Act of 1973 only extends to crude oil,

residual fuel oil and refined petroleum products.

Certain products such as asphalt, road oil refinery

4 Section 210.34(b) provides that:

Petroleum refinery products such as petroleum wax, petro-

leum coke, asphalt and road oil which are not crude oil,

refined petroleum products, or residual fuel oils are exempt

from the provisions of Parts 211 and 212 of this chapter.

5On April 5, 1974 the term “refined petroleum products” was

defined in 10 CFR 212.31 as “... gasoline, kerosene, middle dis-

tillates (include No. 2 fuel oil), LPG, refined lubricating oils, or diesel

fuel.” The term “middle distillates” was defined as“... Nos. | and 2

heating oils, Nos. 1-D, 2-D and 4-D diesel fuels, No. 4 fuel oil,

kerosene and aviation turbine fuel.”

owe

Sh SP COLLAGE PROM

St Oy OF PL.

30-a

gas, petroleum wax and petroleum coke are not

subject to the provisions of the Allocation Act. Pre-

viously, prices of these products have only been

controlled under the authority of the Stabilization

Act.

Because the Economic Stabilization Act expires on

April 30, 1974 and because the Cost of Living

Council has decontrolled the prices charged for re-

lated products such as asphalt which is not produced

in refineries, the FEO is amending the definition of

“covered products” in its price regulations to conform

to the substances over which it has price regulation

authority under the Allocation Act. Therefore, “cov-

ered products” is now defined to mean crude oil,

residual fuel oil, and refined petroleum products.

Since the products which are decontrolled by this

action have never been within the scope of the

Allocation Act, it is not necessary to comply with the

procedures under Section 4(g) of that Act for ex-

empting products from FEO regulations. 39 Fed.

Reg. 12,353 (April 5, 1974)

On January 16, 1975 the FEA again amended the term

“covered products” to enumerate with greater specificity the

products to which that definition refers. The new definition

stated:

“Covered products” means aviation fuels, benzene,

butane, crude oil, gas oil, gasoline, greases, hexane,

kerosene, lubricant base oil stocks, lubricants,

naphthas, natural gas liquids, natural gasoline, No. |

heating oil and No. I-D diesel fuel, No. 2 heating oil

and No. 2-D diesel fuel, No. 4 fuel oil and No. 4-D

diesel fuel, propane, residual fuel oil, special

naphthas (solvents), toluene, unfinished oils, xylene,

and other finished products. A blend of two or more

particular covered products is considered to be that

3l-a

particular covered product constituting the major

proportion of the blend. 40 F. R. 2795 (January 16,

1975)

II. Factual Background of the Present Case

Skelly is a major integrated oil company and maintains crude

oil production, refining and marketing operations throughout

the Midwestern United States. As a result of its refining

activities, Skelly is considered a refiner as that term is defined in

10 CFR 212.31 and is required to sell covered products at price

levels which do not exceed the maximum price levels specified

in Section 212.83 of the Mandatory Petroleum Price Regu-

lations.

As part of its refining and marketing activities, Skelly produces

and sells eleven commercial and industrial solvents. Prior to

April 5, 1974 Skelly calculated the maximum permissable

selling prices for the solvents which it sells pursuant to the

regulatory provisions applicable to covered products set forth in

Section 212.83. However, after the definition of the term

“covered products” set forth in Section 212.31 was amended on

April 5, 1974 Skelly considered that solvents were no longer

covered products and the firm began to sell solvents at prices

which exceeded the maximum permissible price levels which

would have been computed if it had adhered to the pricing

formulae specified in the FEA Price Regulations. Skelly

followed this practice until January 16, 1975 when the defini-

tion of the term “covered products” was amended to specific-

ally include “special naphthas (solvents)”. At that time Skelly

again began pricing solvents in accordance with the price

regulations applicable to covered products.

The Remedial Order which the Regional Administrator issued

to Skelly on November 24, 1975 was primarily based on the

determination that the definition of the term “covered prod-

ucts” in 10 CFR 212.31 always included “solvents.” The Order

further determined that Skelly’s failure to consider solvents as

Og OED BE EPL MEE IEE A

ate eat Liat

eM A OE GAAP 2 LAD PED oi

32-a

covered products under the regulatory provisions in effect

between April 5, 1974 and January 16, 1975 was erroneous and

illegal.

Ill. Skelly’s Appeal

In its Appeal from the Remedial Order Skelly contends that the

FEA lacks the statutory authority to regulate the prices at which

it sells solvents. Skelly states that the solvents which it sells are

not “naphtha” as that term is defined in the /973 Annual Book

of ASTM Standards and are therefore excluded from the

definition of refined petroleum products which appears in

Section 3(5) of the EPAA.

There is no merit to this position. As stated above, the EPAA

Conference Committee Report indicates that the Congress

declined to apply a narrow technical meaning to the term

“refined petroleum products” or to the products which are

specified in the definition of that term. Moreover, the Com-

mittee directed that those terms be broadly construed in order

to insure that the regulatory program applied in a com-

prehensive manner. Solvents share similar physical and chem-

ical characteristics with gasoline, kerosene and distillates and

solvents, like those products, must be produced to precise

quality standards in relatively sophisticated refining facilities.

As a result, any substantial alteration in the proportion of

solvents which refiners produce from their crude oil supply

might directly affect production volumes for those other prod-

ucts. On the other hand, exempt products such as asphalt,

petroleum coke and refinery gas are generally produced as

heavy ends or as residues from other more desirable products

and it is doubtful that a refiner would increase the production of

these products and reduce its output of covered petroleum

products. Thus, it is apparent that solvents must be included

within the allocation and price regulatory program which the

EPAA required in order to insure the comprehensive scope and

effectiveness of that Program. Skelly has not demonstrated that

this determination is erroneous or otherwise an abuse of the

33-a

FEA’s administrative discretion. See, Pasco v. FEA, Emer-

gency Ct. of Appeals, 2 FEA Par. 26,248 (October 14, 1975).

Skelly also contends that even if the EPAA delegates to the

FEA the authority to regulate the selling prices of solvents, the

FEA regulations in effect between April 5, 1974 and January

16, 1975 failed to implement that authority because solvents

were not included within the Section 212.31 definition of those

“covered products” which are subject to the pricing regulations.

As indicated above, covered products were at that time defined

in Section 212.31 as “*... refined petroleum products,” which

were in turn defined in Section 212.31 to mean “.. . gasoline,

kerosene, middle distillates (including No. 2 fuel oil), LPG,

refined lubricating oils, or diesel fuel.”” Middle distillates were

defined in Section 212.31 as “Nos. 1 and 2 heating oils, Nos. 1-

D, 2-D and 4-D diesel fuels, No. 4 fuel oil, kerosene and

aviation fuels.’’6

Skelly contends that the definition of “refined petroleum prod-

ucts” quoted above deviates from the statutory definition by

substituting the narrow technical term “middle distillates” for

the statutory term “distillates.” Skelly further contends that the

regulatory definition of the term “middle distillates” does not

describe or apply to solvents and that no other petroleum

product included within the scope of the term “refined petro-

leum products” applies to solvents. Skelly also asserts that the

definition of the term “middle distillates” in Section 211.51

specifically excluded “solvents” and that it was reasonable

under the circumstances for the firm to have concluded that the

FEA applied the same exclusion to the Part 212 definition.

Skelly therefore contends that solvents were not covered prod-

ucts subject to the FEA Price Regulations and asserts that it was

therefore lawful for the firm to determine the prices of solvents

without regard to the limitations set forth in Part 212.

6 Prior to July 2, 1974 the term “aviation turbine fuel” was used

instead of the term “aviation fuels.”

LS PEGE DEE. LE Te

34-a

We have thoroughly considered the arguments which Skelly

has presented and have determined that Skelly has failed to

demonstrate that the FEA regulations did not extend to sol-

vents. As indicated above, the EPAA directs the FEA to

regulate the allocation and price of refined petroleum products

and solvents are among the products covered. Although the

FEA regulatory definition used the term “middle distillates”

rather than the term “distillates” as stated in Section 3(5) of

the EPAA, it should have been clear to Skelly that solvents

were among the products to which the FEA regulatory author-

ity continued to apply. First, the statement in the preface to the

April 5 Rulemaking noted that the FEA’s regulatory authority

would continue to be applied to all products covered by the

EPAA and that the definition of the term “covered products” in

Part 212 was designed to encompass all products included in

the definition specified in Section 3(5) of the EPAA. 39 Fed.

Reg. 12,353 (April 5, 1974). Moreover, solvents were at that

time subject to allocations pursuant to Part 211, Subpart J

(Naphthas and Gas Oils) and Skelly itself states that it has

continuously regarded solvents as allocated products for the

purposes of Part 211. Since Part 211 and Part 212 of the

Regulatory Program serve diiferent functions it is not unusual

for products to be classified differently in each part.

In addition, Section 4(g)(2) of the EPAA required that the

FEA submit to the Congress for its consideration any proposal

to exempt a product from the regulatory program before such a

proposal could become effective. Since the FEA in no way

initiated proceedings pursuant to Section 4(g)(2) of the Act to

exempt solvents from the coverage of the regulatory program, it

should have been clear to Skelly that the FEA never intended

that result. Accordingly, the determination of the Remedial

Order that solvents were covered products during the period

April 5, 1974 through January 16, 1975 is correct. Skelly was

therefore required to sell those products at price levels which do

not exceed the maximum permissible price level calculated

pursuant to the provisions of 10 CFR, Part 212.

35-a

IV. The Findings of Fact and Cor ‘usions in the Remedial

Order

After establishing that solvents are covered products whose

selling prices were governed by the applicable provisions of the

Mandatory Petroleum Price Regulations, the FEA further

determined in the Remedial Order that during the period May

1, 1974 through January 14, 1975 Skelly obtained approxi-

mately $2,594,000.00 by selling solvents at prices which ex-

ceeded the maximum permissible levels. The Remedial Order

determined the amount of the violation on the basis of the

following computation:

Increased crude oil costs

which Skelly recovered

during this period from

the sale of solvents........... (approximately $5,143,000.00 )

Less the maximum _in-

creased crude oil costs

which Skelly is permitted

to recover in the price

charged for solvents du-

ring this period................. (approximately $2,819,000.00 )

( approximately $2,594,000.00 )

The Remedia! Order also contained an Appendix (Schedule A)

which apportioned these computations on a monthly basis. In

order to remedy this violation and compensate Skelly’s solvent

customers for the overcharges which they experienced, the

Remedial Order directs Skelly to take the following action

within 45 days:

(1) Refund, to purchasers of Skelly’s solvents between

May 1, 1974 and January 14, 1975, by check or credit

memorandum at the purchaser’s option, each customer’s

share cf the amounts shown as “over-recovery” for each

month on the attached Schedule A. Each customer’s share

for a month shall be determined by dividing the amount

shown as “over-recovery” for that month by the total

Ti” “—_yaeErraep an ai ie ae 5 PF

PND Rs PPLE OI. OIE TES

PEL

eset eS —

36-a

volume of solvents sold in that month, and multiplying that

amount by the volume of solvents purchased by that

cus’ »mer in that month.

(2) Pay to each customer for whom a refund is calculated

pursuant to this Order, and in a manner consistent there-

with, interest calculated at 6% per annum for each monthly

amount of refund to that customer for the number of

months between the first day of the month for which such

refund is due and July 1, 1975, and calculated at 9% per

annum between July |, 1975 and the date on which the

refund for that month is made.

(3) Resubmit to FEA, Forms FEO-96 for months

subsequent to May 1974 to reflect the allocation and

recovery of a total of approximately $2,819,000 in sales of

solvents as covered products of the type “i= 3” (pursuant

to 10 CFR §212.83), by correcemg each monthly resub-

mitted form in the amount shown as “recovery” on

Schedule A. Forms FEO-96 resubmitted for January 1975

as the “month of measurement” shall further include an

adjustment for actual revenues recovered in sales of sol-

vents by Skelly for the period January |, through January

15, 1975.

The Remedial Order also directed Skelly to: inform each firm

which receives a refund or credit that such action is taken in

compliance with the provisions of the Order; prepare and

maintain records which demonstrate Skelly’s compliance with

the profit margin limitations set forth in 10 CFR 212.121 during

each fiscal year completed since May 1974; prepare and

maintain records of payments and credits made in compliance

with the Order which indicate customers name and address,

dates of transactions for which refund is made, the dollar

amount of refunds and date and form of refund; and comply

with the provisions of 10 CFR 212.82 and 212.83 regarding

costs and revenues attributable to solvents sold by Skelly as

described in the Order.

Pa a eee ee eee oe i i ad

37-a

In its Appeal Skelly challenges the propriety of these require-

ments on the grounds that the findings of fact which support

them are ailegedly incomplete, vague, incorrect and unsup-

ported by substantial evidence. Skelly asserts that the FEA has

failed to make specific findings regarding the precise amount of

the alleged overcharge and the precise amount which it is

required to refund to each customer and that this occurs

because the FEA did not obtai.: substantial evidence in the

investigatory phase of this proceeding to support explicit factual

findings. The firm further asserts that the Remedial Order is

therefore improperly being used as a discovery device to

compensate for the evidentiary and factual deficiencies of the

record. Skelly contends that this situation deprives it of an

opportunity to construct any meaningful Appeal of the Reme-

dial Order in contravention of its right to due process. Skelly

additionally claims that the refund requiremenis of the Reme-

dial Order are improper and arbitrary because they do not

require Skelly to remit to each customer the precise amount of

the overcharge to that particular customer. In order to remedy

the alleged deficiencies in the Remedial Order, Skelly asserts

that the FEA should be required to indicate the total precise

amount of any alleged overcharge, and calculate the over-

charge imposed in each sale of each product to each specific

customer. Skelly also claims that each such calculation must

indicate the May 15, 1973 selling price of each product to each

particular class of customer and the maximum permissible

increased crude oil costs allocable to each product in each

month.

After considering Skelly’s contentions in this matter, we have

concluded that the Remedial Order generally satisfies appli-

cable due process requirements. However, the Order does

contain certain technical deficiencies which should be corrected

upon a remand to the Regional Administrator. For example,

the Remedial Order contains an attachment which sets forth

only the approximate amount of funds which Skelly recovered

each month by selling solvents at prices which exceeded

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MESS SG ALLY EPI O RE TRE

38-a

maximum permissible levels. Even though the Order itself does

not specifically indicate the manner in which the overcharges

stated were computed or the sources of the data upon which the

FEA relied in making those computations, the cor.pliance file

in this proceeding does indicate that the computations were

derived from data which Skelly itself submitted on a regular

basis to the FEA as a supplement to the firm’s filing of Form

FEA-96. The FEA may certainly rely upon data provided in

these submissions to reach the determination that Skelly over-

charged its customers. Nevertheless, the FEA is required to

inform Skelly of the source of the data which it utilizes in order

to provide the firm the opportunity to contest the accuracy of

reliability of the material or to otherwise explain why reliance

upon this information is inappropriate. The Remedial Order

should therefore be amended to satisfy this requirement.

Skelly also claims that the Remedial Order must state the

precise amount of the overcharge attributable to each product

in each month and that in order to do so the Order must also

establish the proper base price for each product sold to each

class of customer. There is no merit to this position. As

indicated above, Skelly itself informed the FEA that it failed to

consider solvents as covered products during the period April 5,

1974 through January 16, 1975. The FEA found its failure to

do so resulted in a situation in which Skelly charged purchasers

of solvents prices which exceeded the maximum levels specified

in the FEA Price Regulations and thereby resulted in a

violation of those regulations. Moreover, the data which Skelly

provided to the FEA makes a prima facie showing that the

crude oil cost increases which Skelly recovered in the sale of

solvents exceeded the maximum amounts allocable to those

products. Under these circumstances there is clearly substantial

evidence to support the determination that a violation occurred

and additional findings as to the propriety of Skelly’s base price

computations and class of purchaser determinations are not

necessary to support the basic determination that a violation

has occurred.

Se aR PE Sa

39-a

There are a number of procedures available through which the

FEA compliance staff can establish the precise extent of the

violation. Under the provisions of Section 205.200 the FEA can

subpoena data which would permit it to calculate the over-

charges itself’ The FEA can also require Skelly to calculate the

overcharges and submit a special report pursuant to Section

210.91 in which it does so. However the Remedial Order which

was issued in this proceeding did not utilize either of these

procedures and instead requires Skelly to proceed to make

refunds based on approximate price data which was submitted

to the FEA in another context over a year earlier. The

Remedial Order should accordingly be modified and a mecha-

nism established which will result in a more precise compu-

tation of the overcharges which should be refunded.

The record in this proceeding indicates a further defect in the

Remedial Order which should be corrected on remand. The

covered products which are the subject of the Remedial Order

consist of eleven different solvents, each of which have different

base prices. The cost increases which must be attributable to

each of these products in establishing maximum selling prices

are also different. However no such distinction is made in the

Remedial Order. Skelly is instead ordered to make refunds on

the basis of a single volumetric computation of all eleven

products. This approach could well be justifiable if the separate

computations would be so burdensome as to outweigh the

advantages derived from differentiating each of the eleven

solvents. However no findings to this effect appear in the

Remedial Order; nor is there any discussion whatever as to why

the approach was adopted of combining by volume all of the

eleven separate covered products in the refunds which Skelly

was required to make. This issue too should be addressed in

the revised Remedial Order which the Regional Administrator

issues On remand.

In view of the considerations set forth above, the Federal

Energy Administration has determined that the Remedial

Order which was issued to the Skelly Oil Company on Novem-

40-a 4l-a

ber 24, 1975 should be remanded to the Regional Adminis- Federal Energy Administration from which an aggrieved

trator of FEA Region VI for further findings of fact and party may seek judicial review.

conclusions in accordance with the principles set forth in this

Decision.

/s/ Melvin Goldstein

IT IS THEREFORE ORDERED THAT: Svoecnemennssms

Melvin Goldstein

(1) The Appeai which the Skelly Oil Company filed from Director

a Remedial Order issued to it on November 24, 1975 by Office of Exceptions and Appeals

the Regional Administrator of FEA Region VI be and

hereby is granted to the extent set forth in Paragraph (2) Date: Mar. 19, 1976

below.

(2) This matter is hereby remanded to the Regional

Administrator of FEA Region VI. The Regional Adminis-

trator shall issue a revised Remedial Order which:

(a) Identifies the data which the FEA relied upon in

computing the extent of Skelly’s overcharge;

(b) Establishes a mechanism to compute the precise

amount of Skelly’s overcharge; and

compute the precise overcharge attributable to each

product. If Skelly is required to undertake such

computations, the revised Remedial Order must also

indicate the standards and criteria which should be

applied and must establish a mechanism to compute

the precise amount of the overcharge for each product

in each month.

(3) Except as set forth in Paragraph (2) above, the

Remedial Order issued to Skelly is affirmed and the

Appeal which Skelly filed is denied.

(4) With the exception of the matters specifically referred

to in Paragraph (2) above, this is a final order of the

42-a

TEMPORARY EMERGENCY COURT OF APPEALS

OF THE UNITED STATES

No. 10-14

GETTY OIL COMPANY,

Plaintiff-Appellant,

DEPARTMENT OF ENERGY,

Defendant-Appellee.

BEFORE HONORABLE JAMES M. CARTER, HONORABLE WILLIAM

H. BECKER, AND HONORABLE ALFONSO J. ZIRPOLI, JUDGES.

Upon consideration of Appellant’s Petition for Rehearing

and upon the entire court’s consideration of the Suggestion for

Rehearing En Banc, it is ORDERED that the Petition for

Rehearing is DENIED and that the Suggestion for Rehearing

En Banc is DENIED.

FOR THE COURT:

/s/ Ruth H. Jacobson —

Ruth H. Jacobson

Clerk

September 11, 1978

43-a

CERTIFICATE OF SERVICE

I HEREBY CERTIFY that three copies of the foregoing

petition for a writ of certiorari have been served upon the

Solicitor General, Department of Justice, Washington, D.C.

20530, as required by Rules 21.3 and 33 of the Supreme Court

Rules; and that three courtesy copies have been served upon the

Department of Energy.

This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.