Appendix — Dubno v. Mobil Oil Corp.

Office Supreme Court, U.S.

FILED

80-1813 APR 28 1981

In The

Supreme Court of the United States

October Term, 1980

OREST T. DUBNO, Commisioner of Revenue Services

of the State of Connecticut, et al,

Petitioner

Vs.

MOBIL OIL CORPORATION, et al.,

Respondent

CARL R. AJELLO, Attorney General

of the State of Connecticut, et al,

Petitioner

VS.

TEXACO INC., et al

Respondent

ELLA T. GRASSO, Governor of the State of Connecticut, et al

Petitioner

vs.

AMERADA HESS CORPORATION

Respondent

APPENDIX TO PETITION FOR A WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE SECOND CIRCUIT

VOLUME I

TABLE OF CONTENTS

Page

APPENDIX A

Opinion Of Court Of Appeals .................. la

APPENDIX B

ge 2 8a

APPENDIX C

Opinion Of Court Of Appeals In Companion Case

Rs oe i ceca cides cb aber 29a

APPENDIX D

Connecticut Public Act No. 80-71 .............. 43a

APPENDIX E

Emergency Petroleum Allocation Act With

Amendments As Codified .........ccccecececes 46a

Correspondence Between Respondents Mobil And

U.S. Department Of Energy, Wherein, D.O.E. Ex-

press Its Opinion That Section 13(b) Of Conn.

P.A. 80-71 Is Not Preempted By E.P.A.A........ 82a

APPENDIX F

Section 211 Of The Economic Stabilization Act Of

1970 As Codified In Note To 12 U.S.C.A. §1904 .. 86a

APPENDIX G

Tax Injunction Act, 28 U.S.C. §1341............ 9la

APPENDIX A

UNITED STATES COURT OF APPEALS

FOR THE SECOND CIRCUIT

No. 539 — September Term, 1980

Argued October 30, 1980 — Decided January 28, 1981

Docket No. 80-7677

MOBIL OIL CORP., AMOCO OIL COMPANY, GETTY

REFINING AND MARKETING COMPANY, GULF OIL

CORPORATION, and SUN OIL COMPANY OF PENNSYL-

VANIA, ATLANTIC RICHFIELD COMPANY, CHEVRON

U.S.A. INC., EXXON CORPORATION and SHELL OIL

COMPANY,

Plaintiffs-Appellees,

— against —

OREST T. DUBNO, Commissioner of Revenue Services of the

State of Connecticut

ANTHONY V. MILANO, Secretary of the Office of Policy

and Management of the State of Connecticut,

Defendants-A ppellants.

TEXACO INC., a Delaware Corporation,

Plaintiff-A ppellee,

— against —

CARL R. AJELLO, Attorney General of the State

of Connecticut

OREST T. DUBNO, Commissioner of Revenue Services of the

State of Connecticut

ANTHONY V. MILANO, Secretary of the Office of Policy

and Management of the State of Connecticut,

Defendants-Appellants.

2a

‘%

AMERADA HESS CORPORATION,

Plaintiff-Appellee,

— against —

ELLA T. GRASSO, Governor of the State of Connecticut

OREST T. DUBNO, Commissioner of Revenue Services of the

State of Connecticut

ANTHONY V. MILANO, Secretary of the Office of Policy

and Management of the State of Connecticut,

Defendants-Appellants.

Before MULLIGAN and VAN GRAAFEILAND, Circuit

Judges, and WERKER, District Judge.*

Appeal from an order of the United States District Court for

the District of Connecticut, Judge M. Joseph Blumenfeld,

declaring the anti-passthrough provision of Connecticut’s tax

upon the gross earnings of integrated oil companies derived

from the sale of petroleum products in the state to be preempted

by the Emergency Petroleum Allocation Act, 15 U.S.C. § 751 et

seq. and the Mandatory Petroleum Price Regulations, 10

C.F.R. §§ 212.1, 212.82 and 212.83.

Affirmed as to the inapplicability of the Tax Injunction Act,

28 U.S.C. § 1341, dismissed as to the preemption and

abstention issues.

WILLIAM E. GLYNN, Hartford, Conn. (Day, Berry

& Howard, Hartford, Conn., Richard M. Reynolds,

Allan B. Taylor, J. Bruce Boisture, of counsel) for

Plaintiffs-Appellees.

*United States District Judge for the Southern District of New York,

sitting by designation.

3a

FRANCIS J. MCNAMARA, JR., Stamford, Conn.

(Cummings & Lockwood, Stamford, Conn., Eric Watt

Wiechmann, Joseph D. Magri, of counsel) for Plain-

tiff-Appellee Texaco, Inc.

CAPLIN & DRYSDALE, Washington, D.C. (Robert

H. Elliott, Myron C. Baum, Albert G. Lauber, Jr.,

Washington, D.C., and SACHS, SACHS, DELANEY

& SACHS, Milford, Conn., Arthur S. Sachs, Milford,

Conn., of counsel) for Plaintiff-Appelleee Amerada

Hess Corporation.

PETER W. GILLIES, Assistant Attorney General,

Hartford, Conn. (Carl R. Ajello, Attorney General,

Richard K. Greenberg, Paul M. Scimonelli, Ralph G.

Murphy, Robert L. Klein, William B. Gundling,

Assistant Attorneys General, Hartford, Conn., of

counsel) for Defendants-Appellants.

MULLIGAN, Circuit Judge

On April 11, 1980, Conn. Publ. Act. No. 80-71 (Conn. Act)

was signed into law and it became effective July 1, 1980. Section

1 of the Act imposes a 2% tax on the gross earnings derived by

integrated petroleum companies from the sales of petroleum

products in the State of Connecticut. As in the companion New

York case decided today, Mobil Oil Corp. v. Tully, No.

80-7785, slip op. (2d Cir. ), the Connecticut legisla-

ture intended that the burden of the tax would be borne by the

oil companies and not the Connecticut purchasers of oil prod-

ucts. Conn. Act § 13(a). Thus, in Section 13(t) of the Act (the

anti-passthrough provision), the legislature provided that:

[n]o petroleum company subject to the tax imposed

under section 1 of this act shall raise its posted whole-

sale rack price in Connecticut for any petroleum prod-

uct exempt from the federal Emergency Petroleum

Allocation Act (P.L. 93-159) by an amount higher

than the average amount by which such company

4a

raises its wholesale rack price for such product in all

ports on the eastern coast of the United States.

The Connecticut anti-passthrough provision differs from the

New York provision in several respects. The Connecticut provi-

sion applies only to the prices of those petroleum products

“‘exempt’”’ from the EPAA whereas the New York provision

was not so limited. In addition, oil companies can raise the price

of ‘‘exempt’’ petroleum products in Connecticut as long as the

companies similarly raise the prices in the other east coast states

in which they sell their products. The New York provision, on

the other hand, constituted an absolute ban on price rises based

upon the gross receipts tax in New York. Finally, the Connecti-

cut legislature did not rest the validity of the entire tax act upon

the viability of Section 13(b). Rather, in Section 15 of the Act,

the legislature specifically provided that:

[iJf any section, part, clause or phrase in sections 1

through 16, inclusive, of this act, is for any reason held

to be invalid or unconstitutional, sections, parts,

clauses and phrases in said sections not held to be in-

valid or unconstitutional shall not be affected and shall

remain in full force and effect.

None of these differences, however, is significant to the resolu-

tion of this case.

The plaintiffs, eleven oil companies subject to the tax and

anti-passthrough provision, brought this action seeking declera-

tory and injunctive relief in the District Court for the District of

Connecticut. The oil companies argued that the anti-pass-

through provision violated both the Due Process and Interstate

Commerce clauses of the United States Constitution. In addi-

tion, the companies argued that the provision was in conflict

with the EPAA and the Federal Mandatory Petroleum Price

Regulations and was, therefore, preempted by the Supremacy

Clause of the United States Constitution. The defendants-

appel'ents, the Governor of Connecticut, Connecticut Attorney

General, Connecticut Commissioner of Revenue Services and

ss

Sa

Connecticut Secretary of the Office of Policy and Management,

moved to dismiss the action for want of federal jurisdiction pur-

suant to the Tax Injunction Act, 28 U.S.C. § 1341 as well as the

doctrine of absten‘ion, and the plaintiffs-appellees moved for

summary judgment.

Judge M. Joseph Blumenfeid, in a July 9, 1980 memorandum

of decision impliedly denied the defendants’ motion to dismiss

and granted the plaintiffs-appellees’ motion for summary judg-

ment. As in the New York case, Judge Blumenfeld limited his

decision to declaring that the anti-passthrough provision was a

price control measure and was therefore preempted by the

EPAA and the regulations issued thereunder. The opinion is

reported at 492 F. Supp. 1004 (D. Conn. 1980).

The appellant state officers appeal from the adverse rulings

of Judge Blumenfeld on their motion to dismiss and on the

plaintiffs appellees’ motion for summary judgment. The oil

companies have moved before this court to dismiss this appeal in

its entirety arguing that exclusive jurisdiction over this appeal is

vested in the Temporary Emergency Court of Appeals (TECA)

by virtue of 15 U.S.C. § 754(a) (1).

This court in Mobil Oil Corp. v. Tully, supra, has today

decided the very same questions presented in this companion

case. Thus, no further discussion of this court’s jurisdiction is

required. Judge Blumenfeld held that Section 13(a) of the Con-

necticut Act was in effect a price control measure which con-

flicted with the EPAA and its regulations and was, therefore,

preempted by the Supremacy Clause of the United States Con-

stitution (U.S. Const. art. VI, cl. 2). Because this decision neces-

sarily involved a thorough analysis of the EPAA and the Man-

datory Price Regulations, see Mobil Oil Corp. v. Tully, supra,

slip op. at , the district judge adjudicated an ESA

(EPAA) issue and, therefore, exclusive jurisdiction over this

part of the case lies with TECA pursuant to 15 U.S.C. § 754(a)

(1). Id.

6a

As in Mobil Oil Corp. v. Tully, supra, however, we hold that

this court, and not TECA, has jurisdiction to review the district

court’s ruling on the defendants-appellants’ motion to dismiss

pursuant to the Tax Injunction Act, 28 U.S.C. § 1341. Because

this question involves a statute plainly not within the EPAA and

it is severable and independently appealable, we must deny the

appellee’s motion to dismiss with respect to the Tax Injunction

Act. See Texaco, Inc. v. Department of Energy, 616 F.2d 1193

(TECA 1979). Review of the lower court’s decision not to

abstain, however, is properly within the jurisdiction of TECA.

TECA has consistently exercised jurisdiction over ancillary

threshold issues such as mootness, ripeness, and venue. See

e.g., Quincy Oil, Inc. v. Federal Energy Administration, 620

F.2d 890, 893 (TECA 1980). Although the Tax Injunction Act

issue is separate and independent from the EPAA issues,

abstention is properly classified as a threshold issue which has

no life apart from the substantive claim. Jd. A decision to

abstain in this case would necessarily involve a finding that

some possible interpretation of Section 13(b) would render the

provision consistent with the federal regulatory framework.

Such a finding, however, would necessarily entail some analysis

of the federal and state statutes and regulations. Thus, we will

defer to TECA’s particular expertise in this area.

We therefore hold that the appellees’ motion to dismiss is

granted with respect to the preemption and abstention issues

but denied with respect to the applicability of the Tax

Injunction Act.

Having found that this court has jurisdiction over the appli-

cability of the Tax Injunction Act, 28 U.S.C. § 1341, we now

hold, as we have held today in Mobil Oil Corp. v. Tully, supra,

that Section 1341 does not bar this action. Section 13(b), the

anti-passthrough provision, is not an exercise of the state’s tax-

ing power. Rather, in prohibiting the oil companies from

raising their posted wholesale rack price in Connecticut by an

amount higher than the average price rise by the oil companies

7a

in all other ports on the eastern coast of the United States, Con-

necticut has created a price control system even more complex

than the New York provision in Mobil Oil Corp. v. Tully,

supra. Moreover, as in New York, it was the express purpose of

the legislature in enacting Section 13(b) that the tax ‘‘[not] be

construed as a tax upon the purchasers of petroleum products”’

and, thus, ‘‘such tax shall constitute a part of the operating

overhead of such companies.’’ Conn. Act. § 13(a). Finally, it

cannot seriously be argued that the judgment of the court below

has enjoined, suspended or restrained the assessment, levy or

collection of the gross receipts tax. By virtue of Section 15 of

the Connecticut Act, the legislature specifically provided that if

Section 13(b) or any other section, part or phrase were held to

be invalid or unconstitutional the remaining sections of the act

would remain in full force and effect. Thus, the Connecticut tax

is continuing to accrue and be collected. We therefore bold that

the district court was not barred from declaring Section 13(b) to

be preempted by the EPAA because these actions did not seek

to restrain the assessment, levy or collection of a tax. We do not

reach, therefore, the second question under Section 1341 —

whether there existed a plain speedy and efficient state remedy

in the state courts.

Appeal dismissed with respect to the preemption and absten-

tion issues, affirmed with respect to the inapplicability of the

Tax Injunction Act. Any further relief should be sought from

TECA.

MOBIL OIL CORP. vy.

Tully — 80-7785

8a

APPENDIX B

UNITED STATES DISTRICT COURT

DISTRICT OF CONNECTICUT

MOBIL OIL CORP., ET AL.

v. : CIVIL NO. H-80-359

OREST T. DUBNO, ET AL.

TEXACO, INC.

v. : CIVIL NO. H-80-376

CARL R. AJELLO, Ef AL.

AMERADA HESS CORP.

v. : CIVIL NO. H-80-377

ELLA T. GRASSO, ET AL.

MEMORANDUM OF DECISION

The plaintiffs, in their respective complaints in these three

actions, seek declaratory and injunctive relief against the imple-

mentation or enforcement of section 13(b) of Public Act 80-71

of the State of Connecticut.! A hearing on the plaintiffs’

motion for a preliminary injunction was conducted on June 23,

1980. A hearing on the merits was held on June 30, 1980. The

cases are thus ripe for final decision.

IThe sections of P.A. 80-71 that are relevant to this action are repro-

duced in an Appendix to this opinion.

9a

I. BACKGROUND

A. The Connecticut Statute

Section 1 of Public Act 80-71 of the 1980 Connecticut Gen-

eral Assembly (‘‘the Act’’) singles out a narrow group of com-

panies and imposes a two-percent tax on the gross receipts of

those companies from their sales in Connecticut. Only a com-

pany that is engaged primarily in the refining and distribution

of petroleum products and that distributes such products to

wholesale and retail dealers for marketing and distribution in

Connecticut must pay the tax. Since there are no petroleum

refineries in Connecticut, the restrictions on the application of

the tax contained in section 1 effectively limit the tax to inte-

grated petroleum companies engaged in both the refining and

distribution of petroleum products in a number of states. In

contrast, companies that only distribute petroleum products are

not taxed on their receipts from sales in Connecticut.

In the ordinary course of business, the cost of a tax such as

the gross receipts tax would be passed along to purchasers in the

form of higher prices. In order to avoid the predictable applica-

tion of the tax burden to Connecticut purchasers, the General

Assembly enacted section 13 of the Act.

Section 13(a) contains a general statement of legislative

intent: ‘‘It is...the intention of the general assembly that the tax

imposed under section | of this act be construed as a tax upon...

and be collectible from petroleum companies as defined in said

section 1, and that such tax shall constitute a part of the operat-

ing overhead of such companies.’’ Section 13(a) itself contains

no provision respecting the price of petroleum products.

Implementing the intent to have the gross receipts tax treated

as an overhead cost, section 13(b) forbids each company subject

to the tax to raise its wholesale prices in Connecticut by any

amount higher than the average amount by which it raises such

prices ‘‘in all ports on the eastern coast of the United States.’’

Because of section 13(b), such costs may not be added entirely

10a

to prices in Connecticut, but may be recouped only on a pro

rata basis from all customers in the states (including Connecti-

cut) to which petroleum products are distributed from east

coast ports.

The pricing provisions of section 13(b) apply only to petro-

leum products ‘‘exempt from the federal Emergency Petroleum

Allocation Act (P.L. 93-159) [‘“‘EPAA’’].”’ At the present time,

these so-called exempt products include home heating oil, diesel

fuel, residual fuel oil, automotive motor oil, industrial oil and

greases, and aviation fuel.

The plaintiffs in these three actions are petroleum companies

subject to the tax imposed by section 1 of the Act and therefore

to the pricing provisions of section 13(b). They will be required

by sections 1 and 7 of the Act to file quarterly returns and pay-

ments of the tax, which the state anticipates will total approxi-

mately $60 million in the next year. This court is not asked to

decide whether the imposition of the tax is valid. The companies

concede that it is and have indicated their intention to pay that

tax when due. They challenge only section 13(b), which restricts

their ability to pass through the entire cost of the tax to Connec-

ticut purchasers. Pursuant to section 30 of the Act, section

13(b) became effective on July 1, 1980.

The plaintiffs contend that Connecticut’s action is barred by

reason of provisions in the federal Constitution and laws. Their

primary argument is that section 13(b) is pre-empted by federal

regulation and thus cannot stand under the Supremacy Clause

of the Constitution.2 U.S. Const., art. VI, cl. 2. Analysis of this

contention requires examination of the federal statutory and

regulatory scheme on which the plaintiffs rely, a task to which

we now briefly turn.

2Additionally, the plaintiffs argue that section 13(b) unduly burdens

interstate commerce in violation of the Commerce Clause, U.S.

Const., art. I, § 8, cl. 3, and that it violates the Due Process Clause of

the fourteenth amendment.

7%

B. The Federal System for the Pricing of Petroleum Products

When Congress enacted the EPAA, it found that shortages of

various petroleum products ‘‘constitute[d] a national energy

crisis’’ requiring action by the federal government. 15 U.S.C. §

751(a) (3). To alleviate this crisis in the ‘‘national distribution

system’’ for such products, id. § 751(b), the Congress authorized

the President to promulgate regulations governing the alloca-

tion and pricing of crude oil, residual fuel oil, gasoline, kero-

sene, distillates, LPG, refined lubricating oils, and diesel fuel

throughout the United States. Jd. § 753(a).3 The Congress spe-

cifically instructed the President to keep in view the national

scope of the subject to be regulated, requiring that his regula-

tions should provide, to the maximum extent practicable, for

the ‘‘equitable distribution of crude oil, residual fuel oil, and

refined petroleum products at equitable prices among all

regions and areas of the United States....’’ Id. § 753(b) (1) (F)

(emphasis added.)4

3Title 15 U.S.C. § 753(a) provides:

‘*Not later than fifteen days after November 27, 1973, 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 de-

termined in a manner prescribed by) and at prices specified

in (or determined in a manner prescribed by) such regulation.

Subject to subsection (d) of this section, such regulation shall

take effect not later than fifteen 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.”’

4in addition, the President was required to provide, to the maximum

extent practicable, for the ‘‘minimization of economic distortion,

inflexibility, and unnecessary interference with market mechanisms.”’

15 U.S.C. § 753(b) (1) (I).

12a

The understanding of Congress that the allocation and pric-

ing of petroleum products is a national problem requiring

federal regulation is reflected also in the legislative history of

the EPAA. When Senator Henry Jackson, sponsor of Senate

Bill 1570, first introduced the bill on April 13, 1973 he under-

scored the importance of Congress’ actions ‘‘to build a coordi-

nated and rational fuels and energy policy.’’ 119 Cong. Rec.

12317, quoted in S. Rep. No. 93-159, 93d Cong., Ist Sess. 21

(1973). Later, Senator Jackson as floor manager of the bill dur-

ing the Senate debates urged that one of the reasons that Con-

gress should enact mandatory rather than voluntary measures

to address the fuel supply problem was to avoid piecemeal

action by the states:

‘Further, if the Federal Government fails to establish

effective regional or national allocation plans, we will

invite piecemeal action by the States. Our fuel shortage

problems are national problems; they must be recog-

nized and resolved at the Federal level.’’

119 Cong. Rec. 17764 (1973).

In response to the EPAA the President, acting through a

series of executive agencies now submerged in the Department

of Energy (“‘DOE’’), has promulgated a comprehensive system

of regulations governing the allocation and pricing of

petroleum products. See 10 C.F.R. Parts 210-212. Regulations

pursuant to the EPAA were originally issued on December 27,

1973, 39 Fed. Reg. 744 (1974), and were shortly thereafter com-

prehensively reorganized and revised, 39 Fed. Reg. 1924 (1974).

On January 10, 1975, in clarifying its definition of ‘‘covered

products’’ which were subject to price regulation under the

EPAA, the Federal Energy Administration (‘‘FEA’’) empha-

sized its intention to regulate to the full extent of the authority

granted under the Act:

‘*With respect to ‘covered products’ (i.e. those prod-

ucts which are subject to FEA price regulations) the

intent of the FEO [Federal Energy Office], and now

13a

the FEA, has always been to exercise its regulatory

authority under the [EPAA] with respect to all prod-

ucts that are subject to that Act. Previous definitions

of ‘covered products’ as set forth in the Mandatory

Petroleum Price Regulations were in no way intended

to restrict the scope of the price regulations to anything

less than all the products subject to the [EPAA].”’

40 Fed. Reg. 2795 (1975).5 Accordingly, as of that date ‘‘cov-

ered products’’ subject to price regulation under the EPAA

included crude oil, residual fuel oil, and ‘‘refined petroleum

products,’ such as gasoline, kerosene, fuel oil and other distil-

a refined lubricating oils, diesel fuels, propane, and butane.

Id.

Congress supplemented the EPAA in 1975 by adding 15

U.S.C. § 760a as part of the amendments enacted under the

Energy Policy and Conservation Act, P.L. 94-163. That section

authorizes the President to amend the EPAA regulations to

exempt the allocation and pricing of ‘‘crude oil, residual fuel

5‘*The interpretation of the agency charged with administration of the

statute is, of course, entitled to substantial deference.’’ Quern v.

Mandley, 436 U.S. 725, 738 (1978) (citing New York State Depart-

ment of Social Services v. Dublino, 413 U.S. 405, 421 (1973).

6The pervasiveness of federal regulation of the allocation and pricing

of petroleum products is illustrated by Executive Order No. 12140, 44

Fed. Reg. 31159 (1979), as amended by Executive Order No. 12162, 44

Fed. Reg. 56665 (1979), reprinted at 15 U.S.C.A. § 754. When gaso-

line shortages in 1979 created delays and disruptions at retail gasoline

outlets, the need for regulation to protect public safety and order was

apparent. Ordinarily, problems such as long lines and minor disorders

around gasoline stations would have been a matter for state regulation

under the police power. But because of the scope of federal regulation

under EPAA, the governors of the various states could take action

(e.g., the odd-even system, limitations of each customer’s purchase,

preferences for certain classes of customers) only after authorization

by the President in the cited Executive Order.

l4a

oil, or any refined petroleum product or refined product cate-

gory’’ from the general price and allocation regulations con-

tained in 10 C.F.R. According to section 760a(c) (2), the Presi-

dent must omit any such amendment for congressional

approval and must accompany the submission with a statement

of his rationale for the amendment. When proposing to exempt

a product from price control, the President is required to state

to Congress his finding

‘that competition and market forces are adequate to

protect consumers and that exempting such oil or re-

fined product category will not result in inequitable

prices for any class of users of such oil or product. ’’

15 U.S.C. § 760a(d) (1) (B) (emphasis added). The President

must also send to Congress with each proposed amendment his

views as to the ‘potential economic impact’’ of the proposed

exemption, including, where practicable, his views on ‘‘the

State and regional impacts of such amendment’’; ‘‘the effects

of such amendment on the availability of consumer goods and

services; the gross national product; competition’’; and ‘‘the

effects on...consumer prices.’’ Jd. § 760a(d) (2).7 After exempt-

ing products, the President may revoke such exemptions if he

determines that such revocation is necessary to achieve the

federal objectives in the area. Jd. § 760a(f).8

7The requirement that exemptions be submitted to Congress lapsed on

May 31, 1979. See 15 U.S.C. § 760g; 44 Fed. Reg. 19425 (1979).

8Title 15 U.S.C. § 760a(f) provides:

**With respect to any oil or refined product category which

. is exempted pursuant to the provisions of this section, the

President shall have authority at any time thereafter to pre-

scribe a regulation or issue an order respecting either the allo-

cation of amounts, or the specification of price or the man-

ner for determining the price, of any such oil or refined prod-

uct category upon a determination by him that such regula-

?*%

15a

Since June 1, 1976, federal energy authorities have lifted

federal price controls on residual fuel oil, 41 Fed. Reg. 13896

(1976); middle distillates, 41 Fed. Reg. 24516-18, 34008 (1976);

napthas, gas oils, benzene, greases, lubricated base oil stocks,

lubricants, solvents, toluene, unfinished oils, xylene, and other

finished products, 41 Fed. Reg. 30096 (1976); aviation fuel, 41

Fed. Reg. 40452 (1976), 44 Fed. Reg. 7070 (1979); and butane

and natural gasoline, 44 Fed. Reg. 70118 (1979). Before the

exemptions enumerated above went into effect, the actions were

submitted to Congress pursuant to 15 U.S.C. § 760a(c) (2), and

neither the House nor the Senate disapproved of any of them.

The DOE and its predecessor agencies in each instance have

made it clear that the price and allocation controls have been

converted to standby status, with petroleum product markets

subject to continuous monitoring and possible future regulatory

action.

This case presents two distinct but related questions with

respect to the validity of Connecticut’s challenged provision,

section 13(b). ‘‘The first is whether the statute [ ], viewed

independently of federal legislation regulating the [petroleum]

industry, burden[s] interstate commerce in a manner contrary

to the Commerce Clause.’’ Lewis v. BT Investment Managers,

Inc., 48 U.S.L.W. 4638, 4640 (U.S. June 9, 1980). The second

is whether Congress, by its own legislation in this area, has pre-

empted the state’s legislation. These two barriers to the state’s

tion or order is necessary to attain, and is consistent with, the

objectives specified in section 753(b) (1) of this title. Any

such oil or refined product category for which allocation or

price requirements are reimposed under authority of this

subsection may subsequently be exempted without regard to

the provisions of subsection (c) of this section [relating to

submissions to Congress].”’

16a

action overlap to some extent.2 The nexus between the enter-

prises of the plaintiffs and their interstate activities would be

sufficient to justify an examination into whether section 13(b)

impermissibly burdens interstate commerce. Although not

wholly preclusive, the Commerce Clause gives Congress the

power to regulate commerce among the states. However,

because Congress has exercised the commerce power in the field

of production, distribution, and pricing of petroleum products,

it will be more appropriate to consider first whether the state’s

action must give way in the face of national legislation, which is

‘**supreme’’ under article VI of the Constitution.

**Certain first principles are no longer in doubt. Whether

as inference from congressional silence, or as a negative im-

plication from the grant of power itself, when Congress has

not specifically acted we have accepted the Cooley case’s

broad delineation of the areas of state and national power

over interstate commerce.... Absent congressional action, the

familiar test is that of uniformity versus locality: if a case

falls within an area in commerce thought to demand a uni-

form national rule, state action is struck down. If the activity

is one of predominantly local interest, state action is sus-

tained. More accurately, the question is whether the state

interest is outweighed by a national interest in the unham-

pered operation of interstate commerce.

‘*There is no longer any question that Congress can rede-

fine the areas of local and national predominance...despite

theoretical inconsistency with the rationale of the Commerce

Clause as a limitation in its own right. The words of the

Clause — a grant of power — admit of no other result. When

Congress enters the field by legislation, we try to discover to

what extent it intended to exercise its power of redefinition;

here we are closer to an intent that can be demonstrated with

assurance, although we may employ presumptions grounded

in experience in doubtful cases.’’

California v. Zook, 336 U.S. 725, 729 (1949) (citations omitted).

17a

ll. THE SUPREMACY CLAUSE

The Supremacy Clause declares the law of the United States

to be ‘‘the supreme Law of the Land..., any Thing in the Con-

stitution or Laws of any State to the Contrary notwithstanding.”’

U.S. Const., art. VI, cl. 2. In determining whether a state

statute is pre-empted by federal law, and thus invalid under the

Supremacy Clause, the Supreme Court has established a two-

pronged test. ‘‘The first inquiry is whether Congress...has pro-

hibited state regulation of the particular aspects of commerce

involved,’’ Jones v. Rath Packing Co., 430 U.S. 519, 525 (1977)

— that is, whether Congress has ‘‘sought to occupy the field to

the exclusion of the States,’’ Malone v. White Motor Corp., 435

U.S. 497, 504 (1978). If Congress has occupied the field, “‘state

laws regulating that aspect of commerce must fall,’’ whether or

not they are harmonious with the federal sheme. Jones v. Rath

Packing Co., supra, at 525. Second, ‘‘[e]ven if Congress has not

completely foreclosed state legislation in a particular area, a

state statute is void to the extent that it actually conflicts with a

valid federal statute.’’ Ray v. Atlantic Richfield Co., 435 U.S.

151, 158 (1978). The criterion for determining whether such

conflict exists ‘‘is firmly established’’: the court must decide

whether the state law ‘‘ ‘stands as an obstacle to the accomplish-

ment and execution of the full purposes and objectives of Con-

gress.’’’ Jones v. Rath Packing Co., supra, at 526 (quoting

Hines v. Davidowitz, 312 U.S. 52, 67 (1941).

Although the Supreme Court has attempted various descrip-

tions of the ‘‘conflict’’ required under the second prong of the

pre-emption test, it has consistently returned to the formulation

enunciated by Mr. Justice Black in Hines v. Davidowitz: the

Court’s ‘‘primary function is to determine whether, under the

circumstances of [the] particular case, [the state’s] law stands as

an obstacle to the accomplishment and execution of the full

purposes and objectives of Congress.’’ 312 U.S. at 67. Accord,

Aronson v. Quick Point Pencil Co., 440 U.S. 257, 262 (1979);

Ray v. Atlantic Richfield Co., supra, at 158; Jones v. Rath

Packing Co., supra, at 526 (Hines test ‘‘firmly established’’);

DeCanas v. Bica, 424 U.S. 351, 363 (1976); Perez v. Campbell,

> S

18a

402 U.S. 637, 649-50 (1971). Applying the Hines test, the Court

has persistently invalidated state legislation that ‘‘frustrates the

full effectiveness of federal law,’’ Perez v. Campbell, supra, at

652; that betrays a ‘‘general incompatibility with basic federal

objectives,’’ Philadelphia v. New Jersey, 437 U.S. 617, 621 n.4

(1978); or whose ‘‘consequences sufficiently injure the objec-

tives of the federal program’”’ to result in ‘‘frustration to federal

policy.’’ Hisquierdo v. Hisquierdo, 439 U.S. 572, 583, 589

(1979). Cf. White Mountain Apache Tribe vy. Bracker, 48

U.S.L.W. 4897, 4901 (U.S. June 27, 1980) (state taxation of

non-Indian business operating on reservation lands ‘‘would

obstruct federal policies’’ and is pre-empted).

A conflict between state and federal laws may exist despite

the absence of literal inconsistency between them. A state regu-

lation will be pre-empted, in other words, not only where

federal authorities have promulgated a requirement different

from the state’s, but where federal authorities have considered

the matter and ‘‘decided that no such requirement should be

imposed at all.’’ Ray v. Atlantic Richfield Co., supra, at

171-72. The Supreme Court recently reaffirmed that

** ‘where failure of...federal officials affirmatively to

exercise their full authority takes on the character of a

ruling that no such regulation is appropriate or ap-

proved pursuant to the policy of the statute,’ States

are not permitted to use their police power to enact

such a regulation.’’

Id. at 178 (quoting Bethlehem Steel Co. v. New York State

Labor Relations Bd., 330 U.S. 767, 774 (1947)). If federal

authorities have made a considered decision that there should

be no regulation of a particular subject, in short, any state regu-

lation of that subject necessarily conflicts with the federal

scheme.

Of course, mere failure to regulate, in and of itself, will rarely

constitute an affirmative federal decision that ‘‘no such regula-

tion is appropriate or approved’’ in light of federal policy.

**%

19a

Rather, “‘[t]he pertinent inquiry [is] whether [federal authorities

have] addressed and acted upon the question,’’ whether they

have given ‘‘careful consideration’ to factors specified by Con-

gress, and, after balancing the competing interests, whether

they have determined that no regulation, or limited regulation,

is the proper way of achieving federal goals. Ray v. Atlantic

Richfield Co., supra, at 174, 177 (holding state vessel-size regu-

lation pre-empted); National Tank Truck Carriers, Inc. v.

Burke, 608 F.2d 819, 824 (1st Cir. 1979) (affirming grant of pre-

liminary injunction against enforcement of state regulation on

pre-emption grounds). When federal authorities have taken

these steps, it must be assumed that they have thoroughly con-

sidered all the arguments in favor of a given type of regulation,

yet have concluded, on balance, that the absence of regulation

will best serve federal objectives.

In sum, a state law will frustrate the full accomplishment of

congressional objectives if it directly conflicts with a considered

federal determination that a given subject should not be regu-

lated at all. Analysis of the EPAA and its implementing regula-

tions indicates that section 13(b) conflicts in this sense with the

federal scheme governing petroleum product pricing.

A. The Federal Regulatory Scheme

1. The EPAA of 1973

The EPAA directed the President to promulgate mandatory

regulations governing the price and allocation of all petroleum

products. 15 U.S.C. § 753(a). In issuing these regulations, the

President was directed to consider nine specific objectives,

including ‘‘equitable distribution of [petroleum products] at

equitable prices,’’ ‘‘preservation of an economically sound and

competitive petroleum industry,’’ ‘‘economic efficiency,’’ and

“minimization of economic distortion, inflexibility, and

unnecessary interference with market mechanisms.’’ Jd. §

753(b) (1) (D), (F), (H), (I). The President, through the author-

ity given him, promptly adopted comprehensive regulations

20a

controlling the price of all petroleum products. 39 Fed. Reg.

1949 (1974).

In the legislative history of the 1973 Act, Congress repeatedly

voiced its intention that price controls represent a temporary

departure from the free market norm and that they be imple-

mented so as to disrupt the free market as little as possible. The

Senate Report, for example, stated that the EPAA

“‘emphasizes the objective of minimizing economic

distortion, inflexibility and unnecessary interference

in market mechanisms. The Committee intends that

[price controls] be temporary and limited in scope, and

that they not permanently displace the price system as

the main tool for allocating resources and products in

the petroleum industry. [Section 753(b) (1) (1)] indi-

cates the Committee’s preference for price flexibility,

competition and decentralized decisionmaking.”’

S. Rep. No. 93-159, 93d Cong., Ist Sess. 25 (1973). The Confer-

ence Report noted that the objective of minimizing market

interference ‘‘requires special mention’’:

**The committee recognizes that [price controls] neces-

sarily distort the economy and interfere with a free

market mechanism. It is the intent of this legislation

that economic distortion and interference be mini-

mized to the extent practicable. The President should

assure himself that his actions interrupt existing supply

mechanisms only when necessary to permit the accom-

plishment of [EPAA] objectives.’’

H.R. Conf. Rep. No. 93-628, 93d Cong., Ist Sess. 24 (1973).

Accord, H.R. Rep. No. 93-531, 93d Cong., Ist Sess. 19 (1973).

In sum, Congress in 1973 clearly expressed its preference for

the free market as the proper determinant of petroleum product

prices. It regarded price controls as a necessary but unfortunate

— and in all events temporary — departure from that norm.

2la

2. The EPAA Amendments of 1975.

Congress in 1975 added section 12 to the EPAA, 15 U.S.C. §

760a, authorizing the President, by amendment to the regula-

tions, to exempt petroleum products from price controls, and to

convert such controls from ‘‘mandatory”’ to ‘‘standby”’ status.

Id. § 760a(b), (f). Before proposing any exemption, the Presi-

dent is required to determine that ‘‘such amendment is consis-

tent with the attainment, to the maximum extent practicable, of

[EPAA] objectives...and that the regulation, as amended, pro-

vides for the attainment, to the maximum extent practicable, of

such objectives.’’ Id. § 760a(b). Any proposal to exempt a

petroleum product from price controls must be supported by

findings that ‘‘competition and market forces are adequate to

protect consumers and that exempting [such product] will not

result in inequitable prices for any class of users.’’ Id. § 760a(d)

(1) (B). The President is required to assess the state and regional

impacts of any exemption, as well as its effects on competition,

small business, unemployment, consumer prices and the Gross

National Product. Jd. § 760a(d) (2). The President is authorized

to reimpose price controls at any time, without congressional

approval, if he deems them ‘‘necessary to attain [EPAA] objec-

tives.’’ Id. § 760a(f).

In the legislative history, Congress emphasized that the Presi-

dent must make two distinct determinations when proposing to

exempt a petroleum product from price controls. Under section

760a(b), an exemption is permitted only ‘‘(1) if [the President]

determines that the amendment is consistent...with the attain-

ment of [EPAA] objectives...and (2) if he also determines that

the regulation, as amended, provides for the attainment of

those objectives to the maximum extent practicable.’’ H.R.

Rep. No. 94-340, 94th Cong., Ist Sess. 59 (1975) (emphasis

added). The President, in other words, must find both that

exemption from price controls will not impair realization of

national energy goals and that the absence of price controls will

affirmatively provide for the attainment of those goals in the

best possible way.

22a

The legislative history repeatedly confirms Congress’ view

that exemption from EPAA regulation represents an affirma-

tive federal decision that petroleum product prices be set by the

free market. The reports describe the exemption procedure as

effecting ‘‘a gradual return to an unregulated market,’’ S.

Conf. Rep. No. 94-516, 94th Cong., Ist Sess. 203 (1975), and as

‘*phasing from a regulated to an unregulated market system.”’

H.R. Rep. No. 94-340, at 57. Both houses expressed their inten-

tion that gradual price decontrol, subject to the President’s

power to reimpose controls should future crises arise, would

work ‘‘a smooth transition of petroleum markets from a con-

trolled state to an uncontrolled status subject only to standby

authority.’’ H.R. Rep. No. 94-340, at 58. Accord, S. Rep. No.

94-516, at 204.

Congress clearly expressed its preference, moreover, that a

petroleum product, once returned to the free market, should

remain free of price controls indefinitely. The House Report

noted that, under the 1973 EPAA, the President was permitted

to propose tempoary 90-day exemptions, after which time price

controls would automatically revert. Pub. L. No. 93-159, § 4(g)

(2), 87 Stat. 633. This procedure, the Report explained, was

inadequate, for

‘*potentially grave dislocations could result as an oil or

product which had been subject to controls and ex-

empted from those controls, is resubjected to controls.

For the conversion to standby authority mechanism to

be meaningful, some degree of stability and certainty

regarding the status of an oil or product must be

assured.’”

H.R. Rep. No. 94-340, at 57. In enacting the new section

760a exemption procedure, therefore, Congress clearly intended

that price controls, once removed, should be reimposed only if

the President found it absolutely necessary, lest the ‘‘stability

and certainty’’ of petroleum markets be upset to the detriment

of EPAA goals.

23a

Congress thus made its intentions perfectly clear when it

enacted the present EPAA exemption procedure in 1975. Both

in the statute itself and in the legislative history, Congress

expressly declared that the exemption of a given petroleum

product from price controls would constitute an affirmative

federal decision that EPAA objectives required the price of

such product to be set by a free market, subject only to standby

federal controls.

3. Administrative Implementation of Exemptions.

Pursuant to statute, the President has delegated his authority

under the EPAA to the DOE and its predecessor, the FEA. 15

U.S.C. § 754(b); Executive Order 11790, 39 Fed. Reg. 23185

(1974), as amended by Executive Order 12038, 43 Fed. Reg.

4957 (1978). Following the procedures outlined in section 760a,

those agencies have exempted from price controls all petroleum

products except automotive, gasoline, propane, and certain

naturai gas liquids. 10 C.F.R. §§ 210.35, 212.56-.62. Analysis

of these administrative proceedings makes clear that the deci-

sion to exempt has in each case ‘‘take[n] on the character of a

ruling that no such regulation is appropriate or approved pur-

suant to [EPAA] policy,”’ Ray v. Atlantic Richfield Co., supra,

at 178, and that prices should be set, as Congress envisioned, by

the free market. See 41 Fed. Reg. 7122-24 (1976) (residual fuel

oil); 41 Fed. Reg. 24517 (1976) (middle distillates); 44 Fed. Reg.

7066 (1979) (aviation fuels); 44 Fed. Reg. 70118 (1979) (butane

and natural gasoline).

In each case, federal officials explicitly determined (1) that an

end to price regulation was necessary to achieve EPAA objec-

tives and would affirmatively facilitate the attainment of those

objectives to ‘‘the maximum extent practicable’; and (2) that

petroleum prices should be set by a market free from regulatory

constraints. With respect to each exempt product, federal offi-

cials ‘addressed and acted upon the question’’ of price con-

trols, gave ‘‘careful consideration”’ to the factors specified by

Congress, and, after balancing the competing interests,

“decided that no such requirement should be imposed at all.’’

Ray v. Atlantic Richfield Co., supra, at 171-72, 174, 177. The

exemption decision, in short, has uniformly ‘‘ ‘take[n] on the

character of a ruling that no [price] regulation is appropriate or

approved pursuant to the policy of the [EPAA].’”’ Jd. at 178

(quoting Bethlehem Steel Co. v. New York State Labor Rela-

tions Bd., supra, at 774).

Thus, the petroleum products presently exempt from federal

price regulation are not exempt because Congress, the Presi-

dent, and the DOE are no longer concerned with them. Rather,

as the history accompanying each amendment makes clear, an

unregulated market system has been chosen deliberately as the

federal policy for these products. Moreover, this deliberate and

continuing federal policy is evident from the authority of the

President and his delegates to reimpose direct price regulation,

if they determine that the revocation of exemptions becomes

necessary to achieve the federal objectives in the area.

B. Section 13(b) Directly Conflicts With the Federal Policy

Embodied in the EPAA

Section 13(b) of the Act represents an attempt by Connecti-

cut to regulate the market price of petroleum products and is

thus a form of price control.10 See Schirtzinger v. Dunlop, 489

F.2d 1307, 1310 (Temp. Emer. Ct. App. 1973) (treating pass-

through provisions as price regulation). This price control

mechanism operates only on petroleum products ‘‘exempt from

[the EPAA].”’ In thus confining the operation of section 13(b),

10}t is no answer for the state to contend that section 13(b) merely

provides a method for recovering the tax paid under section 1. That

the plaintiffs can recoup the cost of the tax via the route permitted

under section 13(b) does not render that provision any less a price

regulation. It distorts market conditions by keeping prices artificially

low in Connecticut. At the same time, it encourages an artificial price

hike in other states along the eastern seaboard. This is precisely one of

the evils that the EPAA sought to combat. See note 4 supra; note 13

infra.

25a

the Connecticut General Assembly may have drawn the infer-

ence that federal authorities, by removing price controls from

certain petroleum products, intended to permit the states to

regulate the price of such products as they saw fit. However,

analysis of the EPAA, its legislative history, and its administra-

tive implementation reveals that ‘‘exemption’?’ — far from

relinquishing petroleum product pricing to state regulation —

constitutes an affirmative federal decision that petroleum prod-

ucts should be free from aii price regulation, and that EPAA

objectives will best be served by an unregulated free market sub-

ject only to standby federal controls. Section 13(b) is plainly in

direct conflict with the federal regulatory scheme outlined

above — i.e., it directly conflicts with the federal determination

reached by the President and approved by Congress, that such

products should be free of price regulation and their prices

established by an ‘‘unimpeded free market.’’!1

Section 13(b) ‘‘frustrates the full effectiveness of federal

law’’ in several ways. Perez v. Campbell, supra, at 652. In 1975,

Congress warned of ‘‘potentially grave dislocations’’ that could

result if controls exempted from price regulation were ‘‘resub-

jected to controls,’’ stressing that market stability and cer-

tainty’’ were essential to the federal standby regulatory scheme.

Section 13(b), by subjecting federally exempt products to a new

form of price control, risks just such dislocations. By prohibit-

ing suppliers from raising their prices in Connecticut by more

than an arbitrary ‘‘average’’ amount, regardless of supply/

demand or cost factors that might call for higher prices in Con-

11The EPAA contains no express provision pre-empting state laws

governing petroleum product pricing. But cf. 15 U.S.C. § 755(b) (pre-

empting state allocation laws that conflict with federal regulations).

The Supreme Court has explicitly held, however, that, even if a given

state law is not covered by a federal statute’s express pre-emption pro-

vision, the Court ‘‘still must determine whether the state law ‘stands

as an obstacle to the accomplishment and execution of the full pur-

poses and objectives of Congress,’’’ Jones v. Rath Packing Co.,

supra, at 540-41, i.e., whether the state law is invalid on ‘‘conflict’’

grounds.

26a

necticut, section 13(b) will create the ‘‘artificial market condi-

tions’’ that FEA labeled ‘‘extremely detrimental to the nation.”’

Findings and Views Concerning the Exemption of Middle

Distillates from the Mandatory Petroleum Allocation and Price

Regulations 125 (June 15, 1976). By preventing suppliers from

fully recovering, through prices charged in Connecticut, the

true economic cost of products sold in Connecticut, section

13(b) will induce suppliers to sell their products in other states,

risking the very ‘“‘supply problems’’ and ‘‘market distortions”’

that DOE, in removing controls, endeavored to eliminate. Sec-

tion 13(b), in short, tampers with the ‘‘free market’’ in just the

way Congress wished to avoid: it results in ‘‘economic ineffi-

ciency’? and ‘‘unnecessary interference with market mecha-

nisms”’ in flat defiance of the explicit statutory goals of the

EPAA.

There can be no doubt that section 13(b) of the Act directly

conflicts with the federal energy policy embodied in the EPAA.

Because it subjects to price regulation petroleum products that

federal authorities have decided should be free of price regula-

tion, section 13(b) ‘‘stands as an obstacle to the accomplishment

and execution of the full purposes and objectives of Congress’”’

in enacting the EPAA. Hines v. Davidowitz, supra, at 67.

Accordingly, under the test for pre-emption enunciated by the

Supreme Court, section 13(b) is invalid under the Supremacy

Clause.

It is within neither this court’s realm nor its competence to

evaluate the wisdom of federal energy policy, nor the economic

theories that underlie it.12 Suffice it to say, the question

whether the plaintiffs could ‘‘afford’’ to bear alone the tax

imposed by section 1 of the Act is irrelevant to the decision in

this case, as are arguments proffered by the amici who contend

12 According to those theories, section 13(b)’s price restraints will not

deter consumption of energy; at the same time, they will remove

incentives to explore for and produce alternative sources of petroleum

when the country’s need is for larger domestic oil supplies and inde-

pendence from foreign oil.

27a

that the tax cost could and ordinarily would be spread through-

out the several states. All this may be so.13 But inasmuch as sec-

tion 13(b) contravenes federal policy by attempting to regulate

the price that may be charged in Connecticut for the affected

petroleum products, that provision cannot stand.

lil. RELIEF

The plaintiffs have asked for both declaratory and injunctive

relief against the implementation and enforcement of section

13(b). The irreparable injury required for an injunction, how-

ever, could only have been said to exist, if at all, while the plain-

tiffs awaited a final decision in this action. Moreover, a declara-

tory judgment will afford the plaintiffs full and complete

relief,14 since ‘‘a judgment of this court would probably have

13The latter point, however, is of doubtful validity. In Mobil Petro-

leum Co., No. FEE-4296 (June 23, 1977), DOE granted Mobil’s appli-

cation for permission to pass on the cost of Guam’s gross receipts tax

on retail sellers entirely to Guamanian consumers. DOE reasoned that

to spread the cost of the tax wherever Mobil does business would be

*inequitable’’ and thus ‘‘would frustrate one of the objectives that

Congress sought to further in the [EPAA], that of providing for the

‘equitable distribution of...refined petroleum products at equitable

prices among all regions and areas of the United States.’ ’’ Jd. at 6.

The Connecticut General Assembly was well aware of the Guam

decision when it adopted section 13(b). Proceedings of the House of

Representatives at 143-44 (Apr. 11, 1980) (remarks of Rep. Emmons);

id. at 174 (remarks of Rep. Van Norstrand); Proceedings of the Senate

at 75-76, 77-78 (remarks of Sen. Johnson). But as the Supreme Court

has often recognized in the Commerce Clause context, ‘‘to the extent

that the burden of state regulation falls on interests outside the state, it

is unlikely to be alleviated by the operation of those political restraints

normally exerted when interests within the state are affected.’ South-

ern Pacific Co. v. Arizona, 325 U.S. 761, 767 n.2 (1945) (citations

omitted).

14Irreparable injury is not a prerequisite to the issuance of declaratory

relief. Aetna Life Insurance Co. v. Haworth, 300 U.S. 227, 241

(1937).

28a

the same effect upon Connecticut state officials as an injunc-

tion.’’ Arrow Lakes Dairy, Inc. v. Gill, 200 F. Supp. 729, 737

(D. Conn. 1961). Such an injunction, if it later proves to be

necessary, may be sought under 28 U.S.C. § 2202. Hence, it is

declared that section 13(b) of Connecticut Public Act 80-71 is

unconstitutional in that it is pre-empted by federal law and thus

violates the Supremacy Clause. !5

Let judgment enter accordingly. It is

SO ORDERED.

Dated at Hartford, Connecticut, this 9th day of July, 1980.

/s/ M. Joseph Blumenfeld

M. Joseph Blumenfeld

Senior United States District Judge

15The declaratory judgment issued herein does not affect the validity

of the tax enacted by section 1 of the Act, since the Act contains a

severability clause in section 15.

The fact that a severability clause was included casts doubt on the

ingenuousness of the state’s argument that the tax was intended by the

legislature to be assessed on the plaintiffs themselves. Section 15

makes it evident that the state’s primary interest was in the collection

of the tax. Who would bear the burden was of only secondary signifi-

cance to the legislature.

Furthermore, Connecticut’s tax is not earmarked for any particular

purpose whatsoever; its yield goes entirely to the general fund. Even if

the court were disposed to undertake a Commerce Clause analysis, it

could discern no relationship between section 13(b) and the state’s

purported interest in safety, health, or the reputable operation of the

business carried on by the plaintiffs. The state’s suggestion that price

restraints are necessary to protect the health of home heating oil users

could just as well apply to food, soap, or any other product necessary

to consumers’ health and safety. And surely that goal does not require

regulation of the price of jet fuel, lubrication oil, or the many other

products affected by section 13(b).

29a

APPENDIX C

UNITED STATES COURT OF APPEALS

FOR THE SECOND CIRCUIT

No. 482 — September Term, 1980

Argued October 30, 1980 — Decided January 28, 1981

Docket No. 80-7785

MOBIL OIL CORP., ATLANTIC RICHFIELD CO., UNITED

REFINING CO., INC., and GULF OIL CO., CHEVRON

U.S.A. INC., AMOCO OIL CO., TEXACO INC. and

EXXON CORP.,

Plaintiffs-Appellees,

— against —

JAMES H. TULLY, JR., THOMAS H. LYNCH, and FRAN-

CIS KOENIG, Constituting the New York State Tax Commis-

sion; ROBERT ABRAMS, Attorney General of the State of

New York; and JAMES L. LAROCCA, Commissioner of the

New York State Energy Office,

Defendants-Appellants.

NEW ENGLAND PETROLEUM CORP.,

Plaintiff-Appellee,

— against —

JAMES H. TULLY, JR., Commissioner of Taxation and

Finance of the State of New York, and ROBERT ABRAMS,

Attorney General, State of New York,

Defendants-Appellants.

AMERADA HESS CORP.,

Plaintiff-Appellee,

3

30a

— against —

JAMES H. TULLY, JR., THOMAS H. LYNCH and FRAN-

CIS KOENIG, Constituting the NEW YORK STATE TAX

COMMISSION; ROBERT ABRAMS, Attorney General of the

State of New York, and JAMES LAROCCA, Commissioner of

the New York State Energy Office,

Defendants-Appellants.

Before MULLIGAN and VAN GRAAFEILAND, Circuit

Judges, and WERKER, District Judge.*

Appeal from an order of the United States District Court for

the Northern District of New York, Judge Neal P. McCurn,

declaring the anti-passthrough provision of New York State’s

tax upon the gross receipts of oil companies doing business

within the State to be preempted by the Emergency Petroleum

Allocation Act, 15 U.S.C. § 751 et seq. and the Mandatory

Petroleum Price Regulations, 10 C.F.R. §§ 212.1, 212.82 and

212.83, and enjoining the enforcement thereof.

Affirmed as to the inapplicability of the Tax Injunction Act,

28 U.S.C. § 1341, dismissed as to the preemption issue.

THOMAS R. TROWBRIDGE, III, New York, N.Y.

(Donovan Leisure Newton & Irvine, New York, N.Y.;

JOHN M. FREYER, Syracuse, N.Y. (Bond, Schoe-

neck & King, Syracuse, N.Y., of counsel), for Plain-

tiffs Mobil Oil Corporation, Atlantic Richfield and

United Refining Company.

EDWARD F. GERBER, Syracuse, N.Y. and ar-

THUR C. VANGELI and SYDNEY M. AVENT, Bala

Cynwyd, Pa., of counsel), for Gulf Oil Corporation.

*United States District Judge for the Southern District of New York,

sitting by designation.

3la

GEORGE WEISZ, New York, N.Y. (Cleary Gottlieb

Steen & Hamilton, New York, N.Y., JAMES C.

BLAIR, New York, N.Y.; WARNER BOUCK, AI-

bany, N.Y., Bouck Holloway & Kiernan, Albany,

N.Y., of counsel) for Plaintiff New England

Petroleum.

STANLEY D. ROBINSON, New York, N.Y. (Kaye

Scholer Fierman Hays & Handler, New York, N.Y.;

WILLIAM L. ALLEN, JR., Syracuse, N.Y., Han-

cock, Estabrook, Ryan Shove & Hust, Syracuse, N.Y.,

of counsel) for Plaintiff Amerada Hess Corporation.

EDWARD COSTIKYAN, New York, N.Y. and

SIMON H. RIFKIND, New York, N.Y. (Paul Weiss

Rifkind Wharton & Garrison, New York, N.Y., of

counsel) for Defendants Tully, Lynch and Koenig.

SHIRLEY ADELSON SIEGEL, Albany, N.Y. (Solici-

tor General, State of New York, of counsel) for Robert

Abrams and Defendant LaRocca.

MULLIGAN, Circuit Judge:

On June 18, 1980, New York Governor Hugh Carey signed

into law two bills, Senate Bills 10188 and 10261, which created a

new Section 182 of the New York Tax Law and established a

2% tax on the “‘gross receipts’’ of oil companies doing business

in New York. 1980 N.Y. Laws, ch. 271, 272 (N.Y. Act); N.Y.

Tax Law § 182 (McKinney Supp. 1980). The express purpose of

the tax is to raise additional revenue to aid the State’s ailing

public transportation system. N.Y. Act, ch. 272 § 1. Indeed, it

has been estimated by the New York State Division of the Bud-

get that the new tax would raise an additional 235 million dol-

lars annually. Oil companies were reported to have reaped

unjustifiably high profits as a result of market conditions and

were therefore deemed to be an appropriate source of revenue.

N.Y. Act, ch. 272 § 1. In order to ensure that the oil companies,

32a

and not the consuming public, bore the burden of the tax, the

legislature provided in Section 4(12) (a) of the Act (the anti-

passthrough provision) that:

[t]he tax imposed by this section and any penalty which

may be assessed under this subdivision shall be a liabil-

ity of the oil company, shall be paid by such company

and shall not be included, directly or indirectly, in the

sales price of its products sold in this state.

N.Y. Tax Law § 182(12) (a) (McKinney Supp. 1980). Com-

panies which are found to have passed on the cost of the tax

through product pricing are subject to a penalty equal to 100%

of the tax liability for the year in which the violation occurs.

N.Y. Tax Law § 182(12) (b) (2). In addition, the legislature

hinged the viability of the tax itself upon the validity of the

anti-passthrough provision. In 1980 N.Y. Laws, ch. 272, § 5

(the self-destruct provision), the legislature provided that:

[i]f the provisions of [the anti-passthrough section] is

[sic]: (i) adjudged by any court of competent jurisdic-

tion to be invalid and after exhaustion of all “urther

judicial review; or (ii) held in a formal opinion or rul-

ing issued by the federal Economic Regulatory Admin-

istration or any other federal agency of competent

jurisdiction to be violative of the provisions of the

federal Emergency Price Allocation Act of 1973, as

amended, or the federal Mandatory Petroleum Price

Regulations (10 CFR 212) promulgated pursuant

thereto, or any successor federal law or regulation, and

thereby rendered inoperative, and after exhaustion of

all appeals therefrom, then, in either of such events,

all of the provisions of this act shall cease to be in force

and effect [ten days thereafter].

The plaintiffs-appellees, ten oil companies concededly sub-

ject to the tax, instituted these actions in the Northern District

of New York against the defendants-appellants, New York

33a

State Tax Commission, New York State Attorney General and

the Commissioner of the New York State Energy Office, seek-

ing declaratory and injunctive relief. The oil companies argued

that the anti-passthrough provision was invalid (a) because it

conflicted with the Emergency Petroleum Allocation Act, 15

U.S.C. § 751, et. seq. (EPAA) and the Federal Mandatory

Petroleum Price Regulations, 10 C.F.R. §§ 212.1, 212.82 and

212.83, issued thereunder and was therefore preempted by the

Supremacy Clause of the United States Constitution (U.S.

Const. art. VI, cl. 2); and (b) because it violated the Commerce

and Due Process Clauses of the United States Constitution. At

no time did the plaintiffs attack the validity of the tax itself. The

plaintiffs, after expedited discovery, moved for summary judg-

ment while the defendants moved to dismiss the actions for lack

of federal jurisdiction under 28 U.S.C. § 1341, the Tax Injunc-

tion Act. By order dated September 4, 1980, the District Court

denied the defendants’ motion to dismiss and granted summary

judgment in favor of the plaintiffs.

In a memorandum and decision dated September 19, 1980,

Judge Neal G. McCurn held that the anti-passthrough provision

was in effect a price control and not a rule of tax incidence.

Mobil Oil Corp. v. Tully, No. 80-CV-543, slip op. at 10

(N.D.N.Y. September 19, 1980). The court therefore held that

the Tax Injunction Act, 28 U.S.C. § 1341 was inapplicable. Jd.

In addition, because the ‘‘price control’’ provision was found to

be in conflict with the EPAA and the regulations issued there-

under, Judge McCurn declared that the provision was pre-

empted by federal law with respect to exempt and non-exempt

petroleum products. Jd. at 37, 43. Judgment was entered on

September 19, 1980 but on motion by the defendants-appel-

lants, the District Court stayed enforcement until October 31,

1980. Mobil Oil Corp. v. Tully, No. 80-CV-543 (N.D.N.Y. Sep-

tember 28, 1980). The stay was continued by this court in a rul-

ing from the bench at oral argument on October 30, 1980.

The defendants-appellants appeal from Judge McCurn’s

order denying their motion to dismiss and granting the plain-

tiffs-appellees’ motion for summary judgment. The appellees

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34a

have moved before this court to dismiss the appeal for want of

appellate jurisdiction. Arguing that this case ‘‘arises under’”’ the

EPAA, the appellees’ position is that exclusive jurisdiction over

all issues in this case is vested in the Temporary Emergency

Court of Appeals (TECA) by virtue of Section 5 of the EPAA,

15 U.S.C. § 754(a) (1), which incorporates the review provisions

of Section 211(b) (2) of the Economic Stabilization Act. 12

U.S.C.A. § 1904, note (West Supp. 1980). Thus, this case and

its companion case was decided today, Mobil Oil Corp. v.

Dubno, No. 80-7677, slip op. (2d Cir. ) require an

analysis of the appropriate allocation of appellate jurisdiction

between a court of appeals and the TECA.

|

The Motion to Dismiss

(a) Preemption

The threshold issue on this appeal is whether this court has

jurisdiction to hear it. The appellee oil companies have argued

that Section 211(b) (2) of the ESA, 12 U.S.C.A. § 1904, note

(West Supp. 1980), provides that the Temporary Emergency

Court of Appeals (TECA) has ‘‘exclusive jurisdiction of all

appeals from the district courts of the United States in cases and

controversies arising under [ESA].’’ Section 5 of the EPAA, 15

U.S.C. § 754(a) (1), incorporates by reference the jurisdictional

provisions of § 211 of the ESA where there is judicial review of

the regulations promulgated under Section 753(a) of the EPAA

(mandatory allocation of crude oil, residual fuel oil and refined

petroleum products) as well as any order or action taken by the

President or his delegate under the chapter.

In Coastal States Marketing, Inc. v. New England Petroleum

Corp., 604 F.2d 179 (2d Cir. 1979) we held that a case or con-

troversy arises under the ESA or EPAA where the district court

has adjudicated an ‘‘ESA issue.’’ (The court used that expres-

sion to mean issues involving the ESA and the EPAA as well as

regulations promulgated under both statutes. Jd. at 182 n.3).

#%

35a

The Tenth Circuit has indicated that an ESA issue is one

“involving the construction, applicability and effect’’ of the

EPAA, Mountain Fuel Supply Co. v. Johnson, 586 F.2d 1375,

1382 (10th Cir. 1978), cert. denied, 441 U.S. 952 (1979).

The preemption issue presented here does present an EPAA

question which was adjudicated in the District Court and is

thus within TECA’s exclusive appellate jurisdiction. A major

contention of the oil companies was that Section 182(12) (a) of

the New York Tax Law prohibiting the passthrough of the two

percent gross receipts tax was unconstitutional as a state price

control rule which conflicted with the EPAA and the provision

thus void under the Supremacy Clause of the United States

Constitution (U.S. Const. art. VI, cl.2). To make the deter-

mination that the state law conflicted with the federal regula-

tions, as Judge McCurn found, necessitates ‘‘a careful examina-

tion of the Federal EPAA and the Mandatory Price Regulations

promulgated thereunder.’’ Mobil Oil Corp. v. Tully, supra, slip

op. at 6. The trial judge proceeded therefore to analyze in detail

the federal statute and regulations to determine whether or not

the state law was in conflict with the regulations as well as the

congressional scheme and policy. Jd. at 17-43. Whether that

analysis was correct is not properly before this court since in

making the analysis the District Court was clearly construing

and interpreting the EPAA and its regulations.

The appellants argue that the preemption claims arise under

the Constitution rather than the EPAA and thus do not pose an

EPAA question. The argument is not persuasive. In Swift &

Co. v. Wickham, 382 U.S. 111 (1965), the Supreme Court held

that the issue of preemption did not involve a substantial consti-

tutional question so as to warrant the convening of a three

judge court pursuant to 28 U.S.C. § 2282. The Court declared

that the basic question involved in a preemption case ‘‘is never

one of interpretation of the Federal Constitution but inevitably

ane of comparing two statutes.’’ Jd. at 120. See also American

Federation of Labor v. Watson, 327 U.S. 582 (1946).

36a

This Court has made a similar analysis in Andrew v. Maher,

525 F.2d 113, 119 (2d Cir. 1975).

**While [the Supremacy Clause] is the reason why a

state law that conflicts with a federal statute is invalid,

it is the federal statute that confers whatever rights the

individual is seeking to vindicate.”’

It is obvious that in this case the trial court was obligated to

and did make an analysis and interpretation of the two statu-

tory schemes involved here, both state and federal. Having

found that an impermissible conflict existed between the anti-

passthrough provision and the federal statute, regulations and

congressional policy, the finding of preemption was automatic.

Appellants further argue that if arguendo the District Court did

have exclusive jurisdic*ion in all suits arising under the EPAA,

then it should not have adjudicated that issue but rather it

should have followed the statutory mandate of Section 211(c)

and made a determination as to whether a substantial constitu-

tional question exists’? and if so ‘“‘certify such issue to

[TECA].’’ While our analysis would indicate that the substan-

tial issue was statutory and regulatory analysis and interpreta-

tion rather than constitutional, the short answer to the conten-

tion is that the certification issue is a determination to be made

by TECA and not this court. Citronelle-Mobile Gathering, Inc.

v. Gulf Oil Corp., 591 F.2d 711, 716 (TECA), cert. denied, 444

U.S. 879 (1979).

Appellants’ further argument that an EPAA question is one

limited to cases and controversies involving a regulation prom-

ulgated under Section 753(a) and not to all cases or controver-

sies arising under the EPAA itself is at odds with our statutory

interpretation in Coastal States Marketing v. New England

Petroleum Corp., supra. Here the District Court did analyze

and apply the statute, the regulations and the underlying con-

gressional policy. The District Court further made an adjudica-

tion resting on its interpretation of that federal scheme. It there-

fore decided an EPAA issue sufficient to vest TECA by statu-

37a

?

tory mandate with exclusive jurisdiction of this appeal on the

preemption issue.

(b) The Anti-Injunction Act

The oil company appellees’ motion to dismiss the appeals on

jurisdictional grounds is also addressed to the second issue on

this appeal — that 28 U.S.C. § 1341, the Tax Injunction Act,

deprived the District Court of jurisdiction. The appellants argue

that the determination of the District Court that 28 U.S.C.

§ 1341 did not deprive it of jurisdiction was erroneous. The

appellees contend, however, that the issue was ancillary to the

EPAA question and therefore within TECA’s exclusive appel-

late jurisdiction. We disagree with both arguments.

Section 1341 precludes the district courts from enjoining, sus-

pending or restraining ‘‘the assessment, levy or collection of

any tax under State law where a plain, speedy and efficient

remedy may be had in the courts of such State.’’ It is apparent

that the inquiry of the District Court on this issue did not

require any analysis of the EPAA or its regulations. It required

solely an interpretation of a state statute to determine whether

or not an injunction, suspension or restraint was proscribed by

the federal statute. Appellees seemingly recognize this but

denominate it as an issue ancillary to the EPAA preemption

question and therefore within TECA’s exclusive jurisdiction.

In a comparable setting TECA has declined to jurisdiction. In

Texaco, Inc. v. Department of Energy, 616 F.2d 1193 (TECA

1979) TECA declined to accept jurisdiction to review a District

Court holding that the Federal Energy Regulatory Commission

had review authority under the Department of Energy Organi-

zation Act even though the DOE actions which were to be

reviewed by the FERC were taken under the EPAA. The court

reasoned that since the District Court’s only decision was that

the FERC had review authority, which was under the DOE Act

and not the EPAA, it could not exercise jurisdiction since it

involved the interpretation of a statute not within the review

38a

provisions of 15 U.S.C. § 754(a). The court stated, ‘‘...TECA

has repeatedly refused to exercise jurisdiction over issues or

claims not arising under the EPAA even though they may be

joined in the same case with other issues or claims that do arise

under the EPAA.”’ Jd. at 1196.

Here the federal statutory prohibition is plainly not within

the EPAA and the refusal of TECA to exercise such jurisdic-

tion is reasonably to be anticipated. Obviously, the TECA posi-

tion can result in bifurcated appeals as it will in this case but

that has been anticipated by this court in Coastal States Market-

ing v. New England Petroleum Corp., supra, 604 F.2d at 185. It

is desirable to defer to a specialized federal appellate court,

TECA, with its special expertise on EPAA issues, which in this

appeal, includes the preemption question involving analysis of

the congressional intent in enacting the EPAA and the interpre-

tation of the regulations adopted pursuant thereto.

The oil companies rely upon several TECA holdings where

TECA did take jurisdiction over ancillary non-EPAA issues so

that it could ‘“‘perform...the normal and necessary functions of

any court.’’ Quincy Oil Inc. v. Federal Energy Administration,

620 F.2d 890, 893 (TECA 1980). However, TECA has exclusive

jurisdiction only over EPAA issues. Coastal States, supra, 604

F.2d at 181. This Court as a court of appeals has concurrent

jurisdiction in an appeal from a final order of a District Court

over independent issues which do not present an EPAA ques-

tion. Jd. at 186. The Section 1341 question is substantial and is

independently appealable to this court. The oil company’s

reliance on M. Spiegel & Sons Oil Corp. v. B.P. Oil Corp., 531

F.2d 669 (2d Cir. 1976) is misplaced. That case did involve an

appeal from an EPAA question which was within the exclusive

jurisdiction of TECA as well as an ancillary issue — an appeal

from an interlocutory order of the District Court refusing to

transfer the action to another District Court. Our dismissal was

based on the proposition that a ruling on a transfer motion is

not independently appealable under 28 U.S.C. § 1291(a) (1). In

this case the Section 1341 issue is independent and severable

*%

39a

from the EPAA question and presents us with an appealable

order from a ifnal order of the District Court.

We conclude therefore that the motion to dismiss the appeal

on jurisdictional grounds is granted with respect to the preemp-

tion question and denied as to the Section 1341 issue.

Having determined that the preemption issue is within the

exclusive jurisdiction of TECA and that the applicability of the

Tax Injunction Act is properly before this court, we address the

latter issue. Section 1341 is brief and facially clear:

The district courts shall not enjoin, suspend or restrain

the assessment, levy or collection of any tax under

State law where a plain, speedy and efficient remedy

may be had in the courts of such State.

The position of the State defendants is essentially that the

order of the District Court has effectively restricted the ‘‘assess-

ment, levy or collection’’ of a New York State Tax and is thus

within the clear proscription of Section 1341. The oil companies

argue that they do not at all challenge the validity of the tax but

s'miply the anti-passthrough provisions which they denominate

«S an exercise not of the taxing power of the State but rather its

police power. The anti-passthrough provision, they urge, is a

price fixing statute and not a taxing device. While the statutory

linkage between the validity of this provision and the continued

existence of the tax does result in the frustration of the State’s

power to collect the tax, this was the calculated decision of the

legislature and not the result of the court’s determination.

While the briefing and argument on this issue has been inten-

sive, there is no authority precisely in point.

The State appellants argue that Section 182(12) (a) is a state

tax law and that the State has the authority to select the target

of the tax. They rely upon language in First Agricultural Na-

tional Bank v. Tax Commission, 392 U.S. 339, 347-48 (1968)

where the Court held invalid a Massachusetts statute which

imposed a sales tax upon a national bank. In the course of its

opinion the Court construed the state statute as imposing the

legal incidence of the tax upon the purchaser rather than the

vendor. The Massachusetts State Court from which the appeal

originated had construed the statute to impose the tax on the

vendor. In reviewing, the court stated ‘‘[t]kere can be no doubt

from the [express] wording of the statute that the Massachusetts

legislature intended that this sales tax be passed on to the pur-

chaser. For our purposes, at least, that intent is controlling.’’

Id. at 348. It is difficult to understand how the State can reason-

ably construe this language to be helpful here. There was no

Section 1341 issue in that case at all — the appeal was not from

a district court but a state court. No one questions the right of

the State of New York to place the legal incidence of the tax

upon the oil companies — but it is an entirely different matter

for the legislature to instruct the person taxed that he cannot

raise the resources to pay the tax by increasing the price of his

product.

As we have indicated the tax purpose of the !egislation was to

raise funds for the mass transit system. However the purpose of

the anti-passthrough provision was not to raise taxes but ‘‘to do

nothing that will contribute to further increases in the price of

petroleum products to (New York) consumers’’ and ‘‘to prevent

such gross receipts tax from fueling inflation by prohibiting the

passthrough of such tax to the consumers of this state.’’ N.Y.

Act, ch. 272, § 1.

This objective is certainly not an exercise of a taxing power

but a police power affecting the price structure of petroleum

products. We agree that the State has the right to place the legal

incidence of the tax upon .ne oil companies; it has selected its

target. But in barring the targets of the tax from recovering

their costs from the consumer directly or indirectly, the State

has gone beyond its taxing powers and has employed its police

powers. Whether this is appropriate is not the issue before us;

whether it results in a collison with EPAA is for TECA. We

simply hold that that action is not insulated from federal scrutiny

by section 1341.

section 1341.

The mere fact that the anti-passthrough section is contained in

a tax law of the State should not lead to automatic santuary

under Section 1341. In Wells v. Malloy, 510 F.2d 74 (2d Cir.

1975), this court held that a District Court was not prevented

from considering the constitutionality of a Vermont Motor

Vehicle Tax which provided for the suspension of a motor

vehicle license if the owner failed to pay the tax due under the

state law. An indigent claimed that such suspension created

irreparable and immediate hardship and harm to him in viola-

tion of his equal protection rights under the fourteenth amend-

ment. This court found that his attack did not seek a restraint

upon the assessment, levy or even the collection of the tax.

That the attack of the oil companies is not on those sections

of Section 182 which provide for the assessment, levy or collec-

tion of the tax within the prohibition of Section 1341, is

bolstered by the statement of James H. Tully, Jr., Commis-

sioner of Taxation and Finance of the State of New York in his

affidavit in support of a stay which states in part that the plain-

tiffs ‘‘do not challenge the imposition of the tax, or the rate of

the tax, or the allocation formula on the collection of the tax.’’

He further stated that anti-passthrough provision ‘‘is all that

the court enjoined.’’

We agree therefore with the District Court that the anti-pass-

through provision is not an exercise of the taxing power of the

State within Section 1341 but rather of its police powers directed

to its express concerns about inflation and rising fuel costs. A

constitutional attack under the Supremacy Clause on that

aspect of the law is not within Section 1341.

Having so held we need not address the issue of whether or

not a plain, speedy and efficient remedy may be made in the

courts of this State.

42a

The stay of enforcement is continued by this court and shall

continue only until such time as the State can seek a stay from

TECA. Any motion for further relief should be directed to that

court.