Petition — Tully v. New England Petroleum Corp.

Supreme Court brief1981

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80-1864 FILED

IN THE \PR 28 1988.

—_— Court of the United Drage ss.

October Term, 1980

No.

NEW ENGLAND PETROLEUM CORPORATION,

Respondent,

-against-

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

the State of New York, and ROBERT ABRAMS, Attorney General,

State of New York,

" Petitioners.

MOBIL OIL CORPORATION, ATLANTIC RICHFIELD COMPANY,

GULF OIL CORPORATION, UNITED REFINING COMPANY,

INC., CHEVRON, U.S.A., INC., AMOCO OIL COMPANY,

TEXACO OIL., and EXXON CORPORATION,

Respondents,

-against-

JAMES H. TULLY, JR., THOMAS H. LYNCH, and FRANCIS

KOENIG, Constituting the New York State Tax Commission; ROBERT

ABRAMS, Attorney General of the State of New York; and JAMES L.

LaROCCA, Commissioner of the New York State Energy Office,

Petitioners.

AMERADA HESS CORPORATION,

Respondent,

-against-

JAMES H. TULLY, JR., THOMAS H. LYNCH, AND FRANCIS

KOENIG, Constituting the NEW YORK STATE TAX COMMISSION;

ROBERT ABRAMS, Attorney General of the State of New York; and

JAMES L. LaROCCA, Commissioner of the New York State Energy

Office,

Petitioners.

Petition for a Writ of Certiorari to the United States

Court of Appeals for the Second Circuit.

ROBERT ABRAMS .,

Attorney General of the

State of New York

Attorney for Petitioners

The Capitol

Albany, New York 12224

SHIRLEY ADELSON SIEGEL Telephone (518) 474-8101

Solicitor General

PETER G. CRARY

Assistant Attorney General

Of Counsel

Question Presented

Does not the Tax Injunction Act, 28 USC § 1341, divest the

Federal courts of jurisdiction to enjoin enforcement of a provision

of a New York State tax statute on who shall bear the tax, when that

injunction would necessarily prevent collection of the tax itself?

TABLE OF CONTENTS

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Memorandum and Decision of the District Court

Opinion of the Court of Appeals ..............008.

Reasons for Granting the Writ

The decision below resolved a significant and

recurrent issue concerning the scope and purpose of the

Federal Tax Injunction Act (28 USC § 1341) ina manner

contrary to established Federal authority ...........

CONCLUSION — For the reasons stated, the petition

for a writ of certiorari should be granted .......

APPENDICES

APPENDIX A — Memorandum-decision of the District

Court for the Northern District of New York ...

APPENDIX B — Opinion of the Court of Appeals,

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TABLE OF AUTHORITIES

CASES

Czajkowski v Illinois, 460 F Supp 1265 (ND III, 1977),

afid 588 F2d 839 (7th Cir, 1978) .....ccccecees

First Agricultural National Bank v Tax Commission, 392

Se RO RPE 6 kr eRe aR e ON CELEAUESER SO 8 6

Helmsley v Detroit, 320 F2d 476 (6th Cir, 1963) .....

Hillsborough v Cromwell, 326 US 620 (1946) .......

Lynch v Household Finance Corp., 405 US 538 (1972)

Mandel v Hutchinson, 336 F Supp 772 (CD Cal, 1971),

affd 494 F2d 364 (9th Cir, 1974) ..............

Matthews v Rodgers, 284 US 521 (1932) ...........

Moe v Salish & Kootenai Tribes, 425 US 463 (1976)..

Perez v Ledesma, 401 US 82 (1971) ...........eeee

Robinson Protective Alarm Co. v Philadelphia, 581 F2d

BEE Ge GE ATE ok oe Soke Sr FA eee Rekha ewes

Steffel vy Thompson, 415 US 452 (1974) .... te eeeees

Tully v Griffin Inc., 429 US 68 (1976) ......0eeeeeee

Statutes

Emergency Petroleum Allocation Act (15 USC §§ 751, er

PE Si pA Ua aan eC CAWah sae KEEN KARAS. 0.960008

oa ak cS kctie css Comme

Tax Injunction Act (28 USC § 1341) ...............

PAGE

5, 6

TABLE OF AUTHORITIES (cont’d.)

Statutes (cont’d.)

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New York Laws of 1980, chs 271, 272 (including New

PAGE

-*%

IN THE

Supreme Court of the United States

October Term, 1980

No.

NEW ENGLAND PETROLEUM CORPORATION,

Respondent,

-against-

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

the State of New York, and ROBERT ABRAMS, Attorney General,

. State of New York,

Petitioners.

MOBIL OIL CORPORATION, ATLANTIC RICHFIELD COMPANY,

GULF OIL CORPORATION, UNITED REFINING COMPANY,

INC., CHEVRON, U.S.A., INC., AMOCO OIL COMPANY,

TEXACO OIL., and EXXON CORPORATION,

Respondents,

-against-

JAMES H. TULLY, JR., THOMAS H. LYNCH, and FRANCIS

KOENIG, Constituting the New York State Tax Commission; ROBERT

ABRAMS, Attorney General of the State of New York; and JAMES L.

LaROCCA, Commissioner of the New York State Energy Office,

Petitioners.

AMERADA HESS CORPORATION,

Respondent,

-against-

JAMES H. TULLY, JR., THOMAS H. LYNCH, AND FRANCIS

KOENIG, Constituting the NEW YORK STATE TAX COMMISSION;

ROBERT ABRAMS, Attorney General of the State of New York; and

JAMES L. LaROCCA, Commissioner of the New York State Energy

Office,

Petitioners.

Petition for a Writ of Certiorari to the United States

Court of Appeals for the Second Circuit.

—

The petitioners respectfully pray that a writ of certiorari issue to

review that portion of the judgment of the United States Court of

Appeals for the Second Circuit entered in this proceeding on

January 28, 1981 which affirmed the District Court’s denial of

petitioners’ motion to dismiss for lack of jurisdiction.

Opinions Below

The memorandum-decision of the District Court for the

Northern District of New York (NEAL P. McCURN, D.J.), dated

September 19, 1980, which, inter alia, denied petitioners’ motion to

dismiss for lack of Federal jurisdiction, pursuant to 28 USC § 1341,

is reported at 499 F Supp 888 and is set forth as Appendix “A”.

The opinion for affirmance of the Court of Appeals, dated

January 28, 1981 which affirmed the District Court’s denial of

Appendix “B”.

Jurisdiction

The judgment of the Court of Appeals for the Second Circuit was

entered on January 28, 1981, affirming the order of the United

States District Court for the Northern District dated September 4,

1980. The jurisdiction of this Court is invoked under 28 USC §

1254(1).

Statutes Involved

28 USC § 1341, New York Tax Law, § 182 and chapter 272 of the

Laws of New York of 1980 are set forth in pertinent part in

Appendix “C”.

Statement of the Case

In June, 1980, New York Governor Hugh Carey signed into law

two bills (chs 271 and 272 of the Laws of New York of 1980), which

created New York Tax Law, § 182, establishing a 2% tax on the

gross income of oil companies allocable to sources in New York.

The express purpose of this law was to generate revenue to aid New

York’s public transportation system (ch 272 of the Laws of New

York of 1980, § 1).

In order to insure that the burden of this tax would be borne by

the oil companies, themselves, and not the already overburdened

consuming public, the Legislature provided in subdivision 12(a) of

New York Tax Law § 182 (the “anti-pass through provision”) that

the tax imposed “shall be a liability of the oil company...and shall

not be included, directly or indirectly, in the sales price of its

products sold in this state.” Because this provision was an essential

element of the tax policy underlying section 182, the Legislature

expressly made the continued vitality of the tax, itself, dependent

upon the validity of that provision. Thus, section 5 of chapter 272 of

the Laws of New York of 1980 provides that if enforcement of the

anti-pass through provision is enjoined, the tax itself will cease to

have force and effect. }

Thereafter, respondents, ten oil companies, instituted this

action in the District Court for the Northern District of New York,

seeking (1) a declaration that the anti-pass through provision is

unconstitutional under the Supremacy, Commerce and Due

Process Clauses of the United States Constitution and (2) a

permanent injunction against enforcement of that provision.

The respondents subsequently moved for summary judgment

upon their claim that the anti-pass through provision is preempted

by the Emergency Petroleum Allocation Act (15 USC § 741, et seq.)

and its regulations and is therefore void under the Supremacy

Clause. .

The petitioners, in turn, moved to dismiss the action for lack of

Federal jurisdiction, relying on the Tax Injunction Act (28 USC §

1341), which precludes Federal courts from enjoining “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.”

Memorandum and Decision of the District Court

The District Court denied petitioners’ motion to dismiss, holding

section 1341 inapplicable to this action. The Court recognized

that an injunction against enforcement of the anti-pass through

°°.

provision would terminate the entire tax imposed by New York

Tax Law § 182, but nevertheless held this action beyond the

jurisdictional prohibition of the Tax Injunction Act. This holding

was premised upon the rationale that the anti-pas through provision

was a “price control measure, rather than a rule of tax incidence”

(A7)

roceeding to the merits, the Courts granted respondents’ motion

fofsummary judgment, declaring the anti-pass through provision in

violation of the Supremacy Clause and enjoining its enforcment.*

Opinion of the Court of Appeals

The Court of Appeals affirmed the denial of petitioners’ motion

to dismiss, agreeing with the District Court’s determination that the

anti-pass through provision was a price control measure, enacted

under the State’s police power, rather than its taxing power.

Therefore, the Court concluded, a “constitutional attack under the

Supremacy Clause on that aspect of the law is not within Section —

1341” (A29). The Court found this result unaffected by the statutory

linkage between the validity of the anti-pass through provision and

the continued existence of the oil franchise tax under New York

Tax Law § 182, reasoning that this linkage was “the calculated

decision of the legislature” (A28).

The Court also dismissed the petitioners’ appeal from the District

Court’s grant of summary judgment, holding that the preemption

issue raised in this litigation falls within the exclusive appellate

jurisdiction of the Temporary Emergency Court of Appeals,

pursuant to section 5 of the Emergency Petroleum Allocation Act

(15 USC § 754{a][i]). Petitioners’ appeal from the grant of summary

judgment is presently pending in that Court.**

*This judgment has been stayed from the date of its entry to the present

time.

**Should defendants prevail in establishing that there is no preemption,

extensive litigation is further anticipated on plaintiffs’ claims based on the

commerce clause and due process. Meanwhile, defendants maintain that

the motion to dismiss for lack of jurisdiction was erroneously decided.

REASONS FOR GRANTING THE WRIT

The decision below resolved a significant and recurrent

issue cuncerning the scope and purpose of the Federal Tax

Injunction Act (28 USC § 1341) in a manner contrary to

established Federal authority.

The issue of threshold jurisdiction involved in petitioners’ motion

to dismiss is of extreme significance, likely to recur with

troublesome frequency within contexts similar to the instant

matter. As recognized by the New York State Legislature, record oil

profits caused by international market conditions make the oil

industry an appropriate source of the additional State tax revenue

increasingly necessary to alleviate budget problems resulting from

ever-rising costs (ch 272 of the Laws of New York of 1980, § 1). Any

state statute aimed at the oil industry, however, must address both

the effect such taxes could have upon already intolerable oil prices

and the resultant impact an increase in these prices would have upon

a state’s economy. It is clear, therefore, that considerable legislative

ingenuity is required to devise tax statutes which will tap this source

of revenue without contributing to the country’s debilitating

inflationary cycle. The decision below will have a chilling effect on

the exercise of such ingenuity, casting the spectre of federal

injunctive intervention upon all state tax policy decisions addressed

to these issues. Indeed, the availability of such a federal remedy

could pose a grave threat to the operation of state fiscal systems,

since, as recognized by the Court of Appeals (A24), it has been

estimated that section 182’s oil tax would raise 235 million dollars

annually. ;

The decision below conflicts with established equitable principles

of Federal/ State comity intended to avoid such federal intervention

in state tax policy matters. This Court has often noted that federal

district courts are “under an equitable duty to refrain from

interfering with a State’s collection of its revenue except in cases

where an asserted federal right might otherwise be lost” (Tully v

Griffin, Inc., 429 US 68, 73 [1976]). Prior to the enactment of

section 1341, a unanimous Court in Matthews v Rodgers, 284 US

521, 525-526 (1932), discussed the sensitive nature of the use of

Federal injunctions to enjoin the assessment or collection of a state

tax:

“The scrupulous regard for the rightful independence

of state governments which should at all times actuate

the federal courts, and a proper reluctance to interfere

by injunction with their fiscal operations, require that

such relief should be denied in every case where the

asserted federal right may be preserved without it.

Whenever the question has been presented, this Court

has uniformly held that the mere illegality or

unconstitutionality of a state or municipal tax is not in

itself a ground for equitable relief in the

courts of the United States.”

This vitally important principle is embodied in the express mandate

of the Tax Injunction Act (28 USC § 1341) that no Federal

injunction may issue to restrain the “assessment, levy or collection”

of state taxes. Four decades of Supreme Court pronouncements

reveal that “the statute has its roots in equity practice, in principles

of federalism, and in recognition of the imperative need of a State to

administer its own fiscal operations” (Tully v Griffin, Inc., 429 US

68, 73[1976], supra, citing Moe v Salish & Kootenai Tribes, 425 US

463 [1976]; Hillsborough v Cromwell, 326 US 620, 622-23 [1946];

Great Lakes Dredge & Dock Co. v Huffman, 319 US 293 [1943];

Matthews v Rodgers, supra). In an age of heightened sensitivity

toward the role of the states in the federal system, this Court’s

decisions continue to affirm that “federal courts will not entertain

anticipatory adjudication which interferes with state and local tax

administration if there is an adequate state remedy” ( Robinson

Protective Alarm Co. v Philadelphia, 581 F2d 371, 376 [3d Cir,

1978], citing Steffel vy Thompson, 415 US 452, 472 [1974]; Lynch v

Household Finance Corp., 405 US 538, 542 n 6 [1972]; Perez v

Ledesma, 401 US 82, 126-28 & n 17[BRENNAN, J., concurring in

part and dissenting in part)).

Such interference with New York State’s tax administration is

manifest in this case. Despite any incidential price control effect it

might have, the anti-pass through provision at issue here is an

integral aspect of the tax policy sought to be accomplished by

section 182 (see ch 272 of the Laws of New York of 1980, § 1). The

purpose of the anti-pass through provision is not to regulate oil

price levels at all, but rather to prevent the tax on oil companies

from fueling inflation, by insuring that its ultimate burden is not

passed on to the consumers.

Furthermore, the allocation of a tax’s economic burden is clearly

an element of the State’s taxing power, not its poli i

authorities have broad power to determine who sh

of government (First Agricultural National Bank v Tax Com-

mission, 392 US 339, 347-48 [1968]). The exercise of this power is

especially evident in the area of sales taxes, for example, whose

economic impact is often directed specifically by the taxing statutes

(see, e.g., NJSA, §§40.48-8.7[b], 8.20[b]; Ohio Rev Code Ann, §

5739.29; NY Tax Law § 1133{d]). The willingness of the courts

below to interfere with the exercise of New York’s taxing power is

directly contrary to the express provisions of section 1341 and the

equitable principles upon which that section is founded.

Moreover, since the Legislature considered the anti-pass through

provision such an essential element of the tax statute, it expressly

made the continued existence of the tax, itself, dependent upon the

validity of that provision (ch 272 of the Laws of New York of 1980, §

5).* It cannot be gainsaid, therefore, that if respondents are

successful in their attack upon the anti-pass through provision, the

tax imposed by New York-Tax Law, § 182 will cease to exist.

Because an injunction against enforcement of that provision

would thus, as a matter of law, “restrain the assessment, levy or

*That section provides, in pertinent part:

“{i]f the provisions of [the anti-pass through section] is [sic]:

(i) adjudged by any court of competent jurisdiction to be

invalid and after exhaustion of all further judicial review;

*_* *& &

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

effect [ten davs thereafter].”

collection” of the section 182 oil tax, this case falls squarely within

the provisions of the Tax Injunction Act. In holding to the contrary,

the Court below gave that Act a narrow, begrudging interpretation

at odds with the broad construction accorded by Federal courts in

other circuits (see, e.g., Helmsley v Detroit, 320 F2d 476 (6th Cir,

1963); Czajkowski v Illinois, 460 F Supp 1265, 1271-74 (ND Ill,

1977), affd 588 F2d 839 (7th Cir, 1978); Mandel v Hutchinson, 336 F

Supp 772, 779 (CD Cal, 1971), affd 494 F2d 364 (9th Cir, 1974).

One court has, in fact, noted that Federal courts have applied the

jurisdictional bar of section 1341, “virtually without exception in

favor of the State taxing authorities.” Mandel v Hutchinson, supra,

p 778. In Mandel, the plaintiff sought to enjoin enforcement of a

provision in the California Constitution which limited certain

property tax exemptions to veterans who were California residents

at the time of entering into military service. The Court granted the

defendants’ motion to dismiss for lack of jurisdiction despite

plaintiff's argument that he was seeking “only to enjoin the

enforcement of the [Constitution’s] residency requirement,” rather

than “ to restrain the assessment, levy or collection” of any tax

within the meaning of section 1341 (supra, p 779). The Court found

dismissal mandated by section 1341 because “there is a direct

relationship between the enforcement of the residency requirement

and the amount of taxes collected. If the residency requirement

falls, the number of allowable exemptions increases and the amount

of tax revenue decreases.” (Emphasis added.)

Just as the plaintiff in Mandel argued that he was seeking only to

enjoin the enforcement of the residency requirement and not the tax

itself, the Court below reasoned that the District Court’s injunction

restrained simply the anti-pass through provision of the tax.

Federal authority establishes, however, that the Tax Injunction Act

nevertheless requires dismissal since “there is a direct relationship”

between the anti-pass through provision and “the amount of taxes

collected.”

The broad interpretation Federal courts have given section

1341's scope is aptly illustrated by Czajkowski v Illinois, 460 F Supp

1265 (ND Il, 1977), affd 588 F2d 839 (7th Cir, 1978), supra. In that

case, plaintiffs sought to enjoin the enforcement of two provisions

of Illinois’ “regulatory scheme” taxing the distribution, sale and use

of cigarettes. These provisions authorized state revenue agents who

observe Illinois residents purchasing cigarettes at discount prices in

Indiana stores to follow those residents into Illinois, and then to

conduct warrantless searches of their automobilies. The defendants

moved to dismiss pursuant to 28 USC § 1341. The Court, noting

that “[i]t is arguable that plaintiffs are only seeking to enjoin the

state from using unconstitutional methods and procedures to

collect the taxes, rather than the collection of taxes itself”,

nonetheless granted the defendant’s motion to dismiss since “in

order to grant plaintiffs the relief they request, we would in effect be

enjoining the collection of cigarette taxes” (supra, p 1272). As the

Court wrote, supra:

“Section 1341 cannot be avoided by attacks on the

administration and implementation of the taxing

scheme rather than on the validity of the tax itself...”

The Court below ignored the broad interpretation given section

1341 by other Federal courts and affirmed the granting of an

injunction which would inevitably disrupt New York’s taxing

process. Accordingly, the decision of the Court below raises serious

questions in a sensitive area of Federal/ State comity. It may, in fact,

signal a new-found willingness by the Federal courts to intrude into

areas involving the States’ tax power by carving unwarranted

exceptions to section 1341’s broad prohibition.

CONCLUSION

For the reasons stated, the petition for a writ of certiorari

should be granted.

Dated: Albany, New York

April 22, 1981

SHIRLEY ADELSON SIEGEL

Solicitor General

PETER G. CRARY

Assistant Attorney General

Of Counsel

Respectfully submitted,

ROBERT ABRAMS

Attorney General of the

State of New York

Attorney for Petitioners

APPENDIX

A-l

APPENDIX A

MOBIL OIL CORP. v. TULLY

Cite as 499 F.Supp. 888 (1980)

499 FEDERAL SUPPLEMENT

MOBIL vIL CORPORATION, Atlantic

Richfield Company, United Refining

Company, Inc. and Gulf Oil Company

Plaintiffs, ‘

James H. TULLY, Jr., Thomas H. Lynch

and Francis Koenig, Constituting ty,

New York State Tax Commission; Ro}.

ert Abrams, Attorney General of the

State of New York; and James L. La.

Rocca, Commissioner of the New Yor;

State Energy Office, Defendants.

NEW ENGLAND PETROLEUM

CORPORATION, Plaintiff,

James H. TULLY, Jr., Commissioner of

Taxation and Finance of the State of

New York, and Robert Abrams, Atter.

ney General, State of New York, De.

fendas.‘s.

AMERADA HESS CORPORATION,

Pisintiff,

James FE. TULLY, Jr., Thomas H. Lynch,

and Francis Koenig, Constituting the

New York State Tax Commission; Red.

ert Abrams, Attorney General ef the

State of New York; and James L. La.

Rocca, Commissioner of the New York

State Energy Office, Defendants.

Nos. 80-CV-543, 80-CY-544, 80-CV-578,

United States District Court,

N. D. New York.

Sept. 19, 1980.

A-2

Oil companies bruught action seeking

declaratory and injunctive relief with re

spect to antipass—through provision of New

York statute imposing gross receipts tax os

oil companics. On plaintiffs’ motion for

summary judgment and defendants’ motica

to dismiss, the District Court, McCurn, J.

held that: (1) action was not barred by Tax

Injunction Act; (2) New York tax was &

franchise tax permitted to be passed

through under federal regulation; and (3)

antipass-through provision of New York

law was preempted by federal regulation.

Order accordingly.

1. Courts = 508(6)

Tax Injunction Act was‘ intended to

eliminate discrimination between citizens of

a state who are confined te state court in

challenging illegal tax assessments and for-

eign corporations who are able to take ad-

vantage of diversity jurisdiction in federal

court and was also intended to prevent for

eign corporations from paralyzing state fis-

cal operations by refusing to pay siate tax-

es and then commencing long and expensive

litigation in federal court. 28 U.S.C.A.

§ 1341.

2. Courts ¢=508(6)

Tax Injunction Act applies equally to

actions for declaratory or injunctive relief.

28 U.S.C.A. § 1341.

3. Courts @=508(6)

Action secking declaration that provi-

sion of New York law prohibiting the pass—

through of the state’s two percent gross

receipts tax on certain oil companies was

not an attack on the validity of the tax or

the statutorily prescribed administrative

procedures for assessing, ievying or collec-

A-3

ting the tax and thus was not barred by the

Tax Injunction Act, even though the New

York statute contained a provision termi-

nating the tax in the event that the anti-

pass-through provision were invalidated.

28 U.S.C.A. § 1341; N.Y. Tax Law § 182,

subd. 12a); N.Y.Laws 1980, c. 271, § 12 as

amended.

4. Courts @=508(6)

For purposes of determining applicabil-

ity of the Tax Injunction Act, the federal

definition of tax is to be employed. 28

U.S.C.A. § 1341.

5. States ¢=4.11

State statutes can be preempted by

federal regulations properly promulgated

under a federal statute when there is a

conflict between state and federal regula-

tion. U.S.C.A.Const. Art. 6, cl. 2.

6. States 4,13

When Congress has chosen to complete-

ly occupy the field to the exclusion of the

states, state may not regulate within the

field even when the regulation is in harmo-

ny with the federal scheme; if state law

conflicts with valid federal statute, the

state is preempted even though Congress

has not completely foreclosed state legisla-

tion in a particular area. U.S.C.A.Const.

Art. 6, cl. 2.

7. States 4.10

Existence of pervasive and complex

regulations under federal law does not, in

every case, demonstrate a congressional in-

tent to completely occupy a particular field

so as to preempt any state regulation in

that field.

8 States o=4.10

Preemption conflicts may be found,

A-4

even absent ar sctual conflict between

state and federal law, where it is clear that

Congress has addressed the issue and decid-

ed that the particular field should remain

unregulated.

9. States 4.13

State law cannot escape invalidation on

preemption grounds merely because its pur-

pose promotes a valid state intcrest if its

effect frustrates the full effectiveness of

federal law. U.S.C.A.Const. Art. 6, cl. 2.

10. Federal Civil Procedure 2465

Summary judgment is not necessarily

inappropriate simply because the legal is-

sues are complex. Fed.Rules Civ.Proc. Rule

56, 28 U.S.C.A.

11. War and National Emergency 124

Even if an oil refiner has not applied

cost increases cqually among all classcs of

purchasers, the refiner will be deemed to

have done so under regulations adopted

pursuant to the Emergency Petroleum Allo-

cation Act and will not have the deemed

amounts available for future increases.

Emergency Petroleum Allocation Act of

1978, § 4a), 15 U.S.C.A. § 753(a).

12. States o=4.16

Existence of a specific preemption pro-

vision in federal legislation does not pre-

clude application of the general preemption

principles.

13. Courts 89

Letter written by acting general coun-

sel for Department of Energy opining that

a state’s antipass-through provision of a

gross receipts tax imposed on certain oii

companies did not conflict with the Emer-

gency Petroleum Allocation Act and its reg-

A-5

ulations was not decisive of the irsue.

Emergency Petroleum Allocation Act of

1973, § Gb), 15 U.S.C.A. § 755(b).

14. War and National Emergency ¢124

New York's yross receipts tax imposed

on oil company receipts except those re-

ceived for the sale of fuel oil for residential

purposes was a state franchise tax falling

within that group of taxes which could,

under regulations adopted pursuant to the

Emergency Petroleum Allocation Act, be

passed through to the consumer. Tax Law

N.Y. § 182; Emergency Petroleum Allioca-

tion Act of 1973, § 42), 15 U.S.C.A.

§ 753(a).

15. War and National Emergency ¢124

In determining whether antipass—

through provision of New York’s gross re-

ceipts tax imposed on oil companies was

preempted by federal regulation, court was

required to.look not only at the particular

regulation but at the objectives which the

Department of Energy sought to further by

its promulgation. Emergency Petroleum

Allocation Act of 1973, § 4(a), 15 iJ.S.C.A.

§ 753(a).

16. States 4.10

Antipass—through provision of New

York’s gross receipts tax imposed on oil

companies was preempted by federal regu-

lation in the field both with respect to oil

products covered by federa) regulauion and

those exempted from federal regulation.

Emergency Petroleum Allocation Act of

1973, §§ 4a), 12, 15 U.S.C.A. §§ 75%(a),

760a; N.Y. Tax Law § 182, subd. 12; U.S.

C.A.Const. Art. 6, cl. 2.

Donovan, ‘Leisure, Newton & Irvine, New

York City, Bond, Schoeneck & King, Syra-

cuse, N. Y., for plaintiffs Mobil Oil Corp.,

A-6

Atlantic Richfield and United Refining Co.;

Thomas R. Trowbridge, III, New York City,

John M. Freyer, Syracuse, N. Y., of counsel.

Edward F: Gerber, Syracuse, N. Y., Ar-

thur L. Vangeli and Sydney M. Avent, Phil-

adelphia, Pa., for Gulf Oil Corp.

Cleary, GottlieL, Sieen & Hamilton, New

York City, Bouck, Holloway & Kiernan, Al-

bany, N. Y., for plaintiff New England

Petroleum; ‘James C. Blair, New York City,

Warner Bouck, Albany, N. Y., of counsel.

Kaye, Scholer, Fierman, Hays & Handler,

New York City, Hancock, Estabrook, Ryan,

Shove & Hust, Syracuse, N. Y., for plaintiff

Amerada Hess Corp.; Stanley D. Robinson,

New York City, William L. Allen, Jr., Syra-

cuse, N. Y., of counsel.

Robert Abrams, Atty. Gen., State of New

York, Albany, N. Y., pro se and for defend-

ant LaRocca; Shirley Siegel, Sol. Gen., Al-

bany, N. Y., of counsel.

Paul, Weiss, Rifkind, Wharton & Garri-

son, New York City, for defendants Tully,

Lynch and Koenig, constituting the New

York State Tax Commission; Edward Cos-

tikyan, Simon H. Rifkind, New York City,

of counsel.

ORDER

McCURN, District Judge.

Defendants have moved for an order dis-

missing these three actions for lack of sub-

ject matter jurisdiction pursuant to 28

U.S.C. § 1341. Plaintiffs in each action

Lave moved for an order granting summary

judgment in their favor. The Court has

concluded after full hearing and after con-

sideration of the arguments of counsel on

both motions, the memoranda submitted

A-7

therewith, both in support and opposition,

and the exhibits attached thereto, that the

defendants’ motion to dismiss should be de-

nied and that plaintiffs’ motions for sum-

mary judgment should be granted and has

further concluded that in the interests of

judicial economy and in fairness to the liti-

gants, this Order should be issued forthwith

with a Memorandum—Decision containing

the Court's findings of fact and conclusions

of law to follow, as to avoid the need for

the hearing scheduled for September 10,

1980, on plaintiff New England Petroleum

Corporation’s application for a preliminary

injunction with a consolidated hearing on

the merits. It is therefore

ORDERED, ADJUDGED AND DE-

CREED that:

1. The defendants’ motion to dismiss the

plaintiffs’ complaints in these three actions

is denied;

2. The plaintiffs’ motions for summary

judgment (a) declaring the anti—pasas

through provision of section 182(12Xa) of

the New York Tax Law as added by L.1980

ch. 271, § 4, as amended by ch. 272, § 1, and

ch. 272, § 2, invalid as pre-empted by the

Emergency Petroleum Allocation Act, 15

U.S.C. §§ 751—760h and the Mandatory Pe-

troleum Price Regulations, 10 C.F.R. Part

212, promulgated thereunder and thus void

under the Supremacy Clause of the United

States Constitution and (b) enjcining de-

fendants, their delegates and successors in

office from enforcing the anti-pass through

provision against plaintiffs in these actions,

are granted;

3. Entry of judgment in these actions is

hereby stayed until September 17, 1980, and

in the event that a Memorandum—Decision

has not been issued by the Court by that

time, the Court shall, upon notice to the

A-8

parties, extend the stay until such time as a

decision is issued and the defendants have

had a reasonable time to seek a further stay

from the United States Court of Appeals

for the Second Circuit.

IT IS SO ORDERED.

MEMORANDUM AND DECISION

Plaintiffs in these actions seek (4) a dec-

laration that section 182(12) of the New

York Tax Law, as added by L.1980, ch. 271

§ 4 and ch. 272 § 2, which prohibits the

pass—through of the State's recently cnact-

ed two (2%) percent gross receipts tax on

certain oil companies is unconstitutional

and thus invalid and (b) a permanent in-

junction enjoining the defendants from en-

forcing the anti-pass through provision.

Relief is sought on the grounds that the

anti—pass through provision (1) establishes a

state price control rule which conflicts with

the Federal Emergency Petroleum Alloca-

tion Act of 1978, §§ 1-19, 15 U.S.C. § 751-

760h as‘amended, (EPAA), and the Federal

Mandatory Petroleum Price Regulations, 10

C.F.R. Part 212 (Price Regulations) promul-

gated thereunder, and is thus void under

the Supremacy Clause of the United States

Constitution (U.S.Const. Art. VI, cl. 2); (2)

impermissibly burdens interstate commerce

and thus is void under the Commerce

Clause of the United States Constitution

(U.S.Const. Art. I, § 8, cl. 8); and (8) con-

travcnes the Due Process Clause of the

Fourteenth Amendment to the United

States Constitution. (U.S:Const. Amend.

XIV, § 1).

Plaintiffs in all three actions assert juris-

diction under 28 U.S.C. §§ 1331 and 1387.

In addition, plaintiffs in the Mobil Oil and

Amerada Hess actions claim that exclusive

’*

A-9

original jurisdiction is vested in this Court

by § 211 of the Economic Stabilization Act

of 1970 (12 U.S.C. § 1904 note), as expressly

incorporated by reference in § 5S(a) of the

EPAA (15 U.S.C. § 754(a)], and section

502(b) of the Department of Energy Organ-

ization Act, 42 U.S.C. § 7192(b).!

The three actions are presently before the

Court on the defendants’ motion to dismiss

pursuant to the Tax Injunction Act, 28

U.S.C. § 1341 and the plaintiffs’ motions for

summary judgment under Rule 56 of the

Fed.R.Civ.P. on their respective pre-emp-

tion ciaims.*

THE NEW. YORK LEGISLATION

On June 18, 1980, the Governor of New

York State signed into law two bills which

impose an annual tax “upon every oil com-

pany equal to two per centum of its gross

receipts from all sources, or the portion

thereof allocated within the State as herein-

1. Plaintiffs in the Mobil Oil action also include

section 210(a) of the Econumic Stabilization

Act of 1970, 12 U.S.C. § 1904 note in their

exclusive jurisdiction claim.

2. A pretrial confe-cuce with regard to all three

actions was held by the Court on July 29, 1980,

for the purpose of establishing an accelerated

litigation schedule. At that conference it was

decided that defendants’ motion to dismiss

would be argued on August 20, 1980. it was

further determined that motions for summary

judgment to be brought by the plainuifs would

be heard on August 27, 1980, and would be

limited to the parties’ pre-emption claims,

without prejudice to plaintiffs’ seeking summa-

ry judgment on their Commerce and wue Proc-

ess claims. a later date.

Plaintiff, New England Petroleum Corpora-

tion's motion for a preliminary injunction with

a consolidated hearing on the merits pursuant

to Rule 65 of the Fed.R.Civ.P. was scheduled to

commence September 10, 1960.

A-10

after provided ....” (1.1980, ch. 271, § 4).

organized capacity or of maintaining an

office in this state, for all or any part of its

taxable years.” Id. Pursuant to the stat-

ute the term gross receipts covers ali re-

ceipts with the exception of “(r]eceipts re-

ceived by reason of any sale of fuel oil

(excluding diesel motor fuel) used for resi-

dential purposes” and “receipts from any

sale for resale to a purchaser which is an oil

company subject to tax under this section.”

Id.

Revenue collected through the imposition

of this new tax is earmarked to go into the

“regional transportation operating and cap-

ital assistance fund”, created by the legisla-

tion (L.1980, ch. 271 §§ 2, 11), and is to be

used to provide operating and capital assist-

ance to New York State’s mass transporta-

tion system.

An additional provision of the State's

new revenue raising plan prohibits the

pass-through of the tax in the prices

charged to consumers for products sold by

the oil companies in New York State. The

anti-pass through provision, which is set

forth in subsection 12(a) of the new section

182 of the New York Tax Law, provides

that:

The tax imposed by this section and any

penalty which may be assessed under this

subdivision shall be a liability of the oil

company, shall be paid by such company

and shall not be included, directly or indi-

3. The full text of Senate Bills 10188 and 10261

is set forth in an Appendix to this Memoran-

dum-Decision.

-.\

A-11

rectly, in the sales price of its products

sold in this state.

L.1980, ch. 27), § 4(12Xa).

Under the new law, each oil company

subject to the tax is required to file an

annual report with the Commission of Tax-

ation and Finance “certifying, under oath,

that it has not included, directly or indirect-

ly, in the sales price of. its products sold in

this state the tax imposed by this section.”

L.1980, ch. 271, § 4. Companies which are

found to have passed on the cost of the new

tax through increased product costs or who

are found to have filed false reports in

violation of the certification requirement

are subject to a penalty equal to one hun-

dred (100%) percent of the tax imposed for

the year in which the violation occurs.

L.1980, ch. 271, § 4(12\(bX{2).

The plaintiffs in these actions are oil

companies within the meaning of the legis-

lation involved in this litigation and are,

therefore, subject to the gross receipts tax.

Each, in the normal course of business,

would generally pass on the cost of the new

tax through increased petroleum product

prices to customers in the taxing jurisdic-

tion.

None of the plaintiffs challenges the im-

position of the gross receipts tax itself.

Rather, they challenge only the anti—pass

through provivon of § 182(12\a), which is

now in effect. As previously indicated, the

plaintiffs’ motions for summary judgment

which are before the Court are limited to

the pre-emption claims.

Analysis of the pre-emption claims shall

necessitate a careful examination of the

Federal EPAA and the Mandatory Price

Regulations promulgated thereunder.

A-12

However, since the need for a determina-

tion on the preemption issue would disap-

pear should the Court grant the defendants’

motion to dismiss, that motion should be

addressed and disposed of first.

MOTION TO DISMISS

Defendants contend that the Tax Injunc-

tion Act, 28 U.S.C. § 1341, divests the Court

of jurisdiction in these actions. Plaintiffs

disagree. Section 1341 provides that:

The district courts shall not enjoin, sus-

pend or restrain the assessment, levy or

collection of any tax under State law

where a plain, speedy and eificient reme-

dy may be had in the courts of such

State.

The defendants’ argument for application

of the Tax Injunction Act in these cases is

basically as follows. Plaintiffs are chal-

lenging the validity of the anti-pass

through provision of the new oil company

franchise tax legislation. If plaintiffs are

successful in having the anti-pass through

invalidated, the gross receipts tax, by the

terms of the New York legislation “shall

cease to be in force and effect.” L.1980, ch.

271, § 12, as amended by L.1980, ch. 272,

§ 5. Thus, according to the dcfendants, the

plaintiffs’ attack on the anti-pass through

provision is in reality an attack on the tax

itself. Since a decision by this Court strik-

ing down the anti-pass through provision

would by virtue of the statutory mandate,

effectively “enjoin, suspend cr restrain the

assessment, levy or collection of [a] tax

under State law,” defendants conclude that

the Court is without jurisdiction pursuant

to 28 U.S.C. § 1341.

Plaintiffs challenge the defendants’ con-

clusion as to the applicability of 28 U.S.C.

$ 1341 in these actions and disagree as well

A-13

with defendants’ assertion of the availabili-

ty to plaintiffs of a “plain, speedy and

efficient remedy” in the Courts of New

York State. In disputing the existence of a

State Court remedy acceptable under 28

U.S.C. § 1341, plaintiffs argue that exclu-

sive jurisdiction over their pre-emption

ciaim rests in federal district court by vir-

tue of § 211 of the Economic Stabilization

Act of 1970 (12 U.S.C. § 1904 note), which

as previously pointed out was expressly in-

corporated by reference in § 5S(a) of the

EPAA, 15 U.S.C. § 754(a). Thus, according

to plaintiffs there is no state court remedy

available. .

Since, for reasons to be discussed below,

the Court does not find the Tax Injunction

Act, 28 U.S.C. § 1341, applicable to these

actions, it will not be necessary to reach

plaintiffs’ exclusive jurisdiction claim.

[1] The Tax Injunction Act embodies

long-standing principles of equity and fed-

cralism which recognize “the imperative

need of a State to administer its own fiscal

operations.”* Tully v. Griffin, 429 U.S. 68,

73, 97 S.Ct. 219, 222, 50 L.Ed.2d 227 (1976).

Quoting from the decision of the Supreme

Court in Great Lakes Dredge & Dock Co. v.

Huffman, 319 U.S. 298, 298, 68 S.Ct. 1070,

1073, 87 L.Ed. 1407 (1943), the Court in

Tully stressed that:

“Interference with state internal econo-

my and administration is inseparable

from assaults in the federal courts on the

validity of state taxation, and necessarily

attends injunctions, interiocutory or final

restraining collection of state taxes.

Tully v. Griffin, supra, 429 U.S. at 78, 97

S.Ct. at 222. See also Matthews v. Rodgers,

284 U.S. 521, 525-526, 52 S.Ct. 217, 219, 76

L.Ed. 447 (1932).

[2] Section 1341 has been found to apply

equally to actions for declaratory or injunc-

A-14

tive relief. Houston v. Standard-Triumph

Motor Co., 347 F.2d 194, 198 (5th Cir. 1966);

Helmsley v. City of Detroit, 320 F.2d 476,

478 (6th Cir. 1963); First United Methodist

Church v. City of Syracuse, 489 F.Supp. 185

(N.D.N.Y.1980).

The Tax Injunction Act has served as the

basis for dismissal on jurisdictional grounds

of actions directly challenging the validity

of a state tax, See e. g. American Commut-

ers Ass'n. v. Levitt, 279 F.Supp. 40 (S.D.N.

Y.1967) aff'd. 405 F.2d 1148 (2d Cir. 1969);

57th St. Management Corp. v. City of New

York, 456 F.Supp. 286 (S.D.N.Y.1978); ac-

tions attacking particular. aspecis of state

taxing schemes, which bore a direct rela-

tionship to the successful assessment and

collection of the tax, See e. g. Mandel v.

Hutchinson, 336 F.Supp. 772 (C.D.Cal.1971)

aff'd; 494 F.2d 364 (9th Cir. 1974); and

4. The legislative history of the Tax Injunction

Act suggests two purposes behir.d its passage.

The first was to eliminate the discrimination

between citizens of a state who were confined

to state court in challenging illegal tax assess-

iments and furcign corporations who were able

to take advantage of diversity jurisdiction in

federal court.

federal court: S.Rep.No. 1035, 75th Cong, Ist

Sess. (1937); 81 Cong.Rec. 1415-17 (1937).

See also Gurrett v. Bamford, 538 F.2d 63, 72

(3d Cir.), cert. denied 429 U.S. 977, 97 S.Ct.

485, 50 L.Ed.2d 585 (1976); Tramel v. Schrad-

er, 505 F.2d 1310, 1315-16 (Sth Cir. 1975).

The Supreme Court, however, has consistent-

A-15

lawsuits challenging the procedures and

methods employed ir the levy or collection

of a state tax. See e. g. Czajkowski v.

State of Iil., 460 F.Supp, 1265, 1271-74

(N.D.II1.1977), aff'd mem., 588 F.2d 839 (7th

Cir. 1978); Kimmey v. H. A. Berkheimer,

Inc., 376 F.Supp. 49, 54-55 (E.D.Pa.1974),

aff'd. mem., 511 F.2d 1394 (3d Cir. 1975).

Section 1341 has, on occasion, been found

inapplicable in cases involving a aspect of

a state taxing scheme. In Hargrave v.

McKinncy, 413 F.2d 320 (5th Cir. 1969), the

Court found that § 1341 did not require

dismissal of an action in which the plain-

tiffs sought the collection and disbursement

of certain county tax monies rather than an

injunction on collection of taxes.

The Second Circuit in Wells v. Malloy,

516 F.2d 74 (2d Cir. 1975), refused to apply

the Tax Injunction Act where the plaintiff

challenged a Vermont statute which sus-

pended the driver’s licenses of individuals in

default in payment of the state motor vehi-

cle purchase and use tax. Writing for the

Court, Judge Friendly stated that in enact-

ing the Tax Injunction Act

Congress was thinking of cases where

taxpayers were repeatedly using the fed-

eral courts to raise questions of state or

federal law going to the validity of the

particular taxes imposed upon them

(footnote references omitted)-not to a

case where a taxpayer contended that an

unusual sanction for non—payment of a

tax admittedly due violated his constitu-

tional rights .... (Emphasis supplied)

Id. at 77.5

There is no question but that the gross

receipts tax on oil companies would cease to

be in effect at a statutorily ordained time

after a determination by the Courts that

the anti—pass through provision now under

A-16

attack is invalid. Nonetheless, this Court

as previously stated, does not believe that

these cases fall within the jurisdictional

proscription of the Tax Injunction Act.®

[3] The plaintiffs are not challenging

the validity of the gross receipts tax nor are

they attacking the statutorily prescribed

administrative procedure for assessing,

levying or collecting the tax. In fact, but

for the “self-destruct” mechanism included

in the legislation, a determination by this

Court invalidating the anti-pass through

provision would have absolutely no affect

on the “assessment, levy or collection” of

the gross receipts tax. 28 U.S.C. § 1341.

{4) Defendants describe the tax and the

anti-pass through provision as a “single

entity”, with the latter provision being

merely a “rule of tax incidence”: Plain-

tiffs, on the other hand, argue that the

anti-pass through: provision is u state price

control measure separate from the tax it-

self. The Court, having carefully reviewed

the statutory language of S-10188 and

10261 agrees that the anti-pass through

5. The new Tax Injunction Act has also been

‘ found to be inapplicable in actions which are

either brought by the United States or which

although brought by a private individual or

group could have been commenced by the Unit-

ed States. See e. g. Moe v. Confederated Salish

and Kootenai Tribes, 425 U.S. 463, 473, 96 S.Ct.

1634, 1641, 48 L.Ed.2d 96 (1976); Department

of Employment v. United States, 385 U.S. 355,

358, 87 S.Ct. 464, 466-67, 17 L.Ed.2d 1414

(1966).

6. The Fifth Circuit Court of Appeals in Har-

grave v. McKinney, supra, 413 F.2d at 326

cautioned that:

Encroachments on the federal judiciary’s

power to vindicate rights allegedly guaran-

teed by the Constitution must be construed

narrowly. Cf. Phillips v. United States, 1941,

312 U.S. 246, 251, 61 S.Ct. 480, 85 L.Ed. 800.

A-17

provision is a price control measure, rather

than a rule of tax incidence. See Schirt-

zinger v. Dunlop, 489 F.2d 1307, 1310 (Em.

App.1973) (treating pass—throngh regula-

tions as a form of price control), and is of

the opinion that the “self-destruct” mecha-

nism contained in the legislation indicates

an intent on the part of the state legisla-

ture to impose the gross receipts tax on oil

companies only if it can in addition impose

controls on the prices charged by the com-

panies for products sold in New York State.

The statement of legislative findings and

declaration of purpose, following discussion

of the State’s mass transit fisca: crisis, pro-

vides that:

It is also found that oil companies are

currently reaping historically high prof-

its. These increased profits do not result

from the application of normal manage-

ment techniques and strategies which any

business uses to maximize profits, but

rather result from the market conditions

prevailing within the international oil in-

dustry, which ure artificially inflating the

price of petroleum products. In view of

the high cost of petroleum, the impor-

tance of energy conservation and New

York’s dependence upon foreign energy

suppliers, oil companies have become

businesses clothed with a public interest.

(Emphasis supplied)

L.1980, ch. 272, § 1.

The statement goes on to indicate an

awareness on the part of the Legislature of

the problems involved in supporting a mass

transportation system in light of the “eco-

nomic recession” and “inflationary cycle”.

Id. The Legisiature, having determined

that it did not wish to contribute to the

“inflationary spiral” or “contribute to fur-

ther increases in the price of petroleum

A-18

products to consumers” expressed the fol-

lowing legislative intent:

The legislature hereby determines and

declares that it is the public policy of the

state to tax the gross receipts of oi] com-

panies and at the same time to prevent

such gross receipts tax from fueling infla-

tion by prohibiting the pass through of

such tax to the consumers of this state.

Therefore, it is the intent of the legisla-

tive that the gross receipts tax shall cease

and terminate if such tax shall be permit-

ted, either by judicial adjudication or by

any formal opinion or ruling or in any

cther manner, to be included either di-

rectly or indirectly in the sales price of

the products of the oil company.

The foregoing language suggests to the

Court that the Legislators anticipated that

the anti—pass through provision of the legis-

lation might be challenged, apart from any

attack on the tax itself, and that it might

be struck down by the Courts with no

threat to the continued collection of the tax.

The fact that the State chose to make the

taxes’ survival dependent upon the survival

of a provision which constitutes an exercise

of the State’s police power rather than tax-

ing power does not, in the opinion of this

Court, justify the application of the Tax

Injunction Act.

The Court does not question the State's

authority to enact a taxing statute, the

survival of which is inextricably linked to

7. Although the State can label the anti-pass

through provision any way it wishes, for the

purpose of determining the applicability of 28

U.S.C. § 1341, the Federal definition of tax is to

be employed. Robinson Protective Etc. v. City

Of Philadviphia S61 F.2d 371, 375 (3d Cir.

1978).

7 =

A-19

the surviva! of legislation constituting an

exercise of the State’s police power. How-

ever, it does not accept the defendants’

argument that the question of constitution-

ality of such an exercise of police power can

be insulated from Federal judicial scrutiny

through a legislatively imposed linkage

with a state taxing measure.’ Therefore,

the Court finds that it has jurisdiction in

these actions under 28 U.S.C. §§ 1531, 1337,

2201 and 2202 and hereby denies the de-

fendants’ motion to dismiss pursuant to the

Tax Injunction Act..

& In seeking dismissal of these actions under 28

U.S.C. § 1341, defendants ask the Court to

closely examine the long history of hostility to

government by Federal injunction and the tra-

ditional Federal policy of non-intervention in

certain state governmental matters.

In that regard, defendants point to the enact-

ment of the Norris-LaGuardia Act of 1932, (29

U.S.C. §§ 105-115) which restricts the Federal

Courts’ power to issue injunctions in labor dis-

putes and the Johnson Act of 1934, 28 U.S.C.

§ 1342, which prohibits Federal Courts from

issuing injunctions of pubiic utility rate orders

and after which the Tax Injunction Act was

“modeled”. 81 Cong.Rec. 1415 (1927).

It is interesting to note, in that regard, that

the Johnson Act, which deals with what are in

effect price control measures (public utility

rates) precludes the issuance of Federal Court

injunctions only if “(t]he order does not inter-

fers with interstate commerce”. 28 U.S.C.

§ 1342(2). The Tax Injunction Act, of course,

contains no such exception. While it is conjec-

ture on the pai of this Court, it would appear |

that Congress, in passing the Tax Injunction

Act, anticipated that it would be applicable

only in situations involving a state’s internal

fiscal affairs. Price controls, however, by their

very nature are more apt to have an effect

which reaches outside of the boundaries of the

State, thus calling for the exception in the

Johnson Act, and perhaps bolstering the

Court's determination in these cases.

A-20

SUPREMACY CLAUSE

Plaintiffs seek judgmert invalidating the

anti—pass through provision on the grounds

that it is pre-empted by the EPAA and the

price control regulations promulgated

thereunder and is thus void under the Su-

premacy Clause of the Constitution.

The Supremacy Clause provides that

“... the Laws of the United States ...

shall be the supreme Law of the Land, ...

any thing in the Constitution or Laws of.

any State to the contrary notwithstanding.”

(U.S.Const. Art. VI, cl. 2).

The Supreme Court has frequently cau-

tioned that in cases such as these involving

a challenge to a State’s police power under

the Supremacy Clause that the Court must

“start with the assumption that the historic

police powers of the States were not to be

superseded by the Federal Act unless that

was the clear and manifest purpose of Cen-

gress.” Ray v. Atlantic Richfield Co., 435

U.S. 151, 157, 98 S.Ct. 988, 994, 55 L.Ed.2d

179 (1978), quoting from Rice v. Sante Fe

Elevator Corp., 331 U.S. 218, 230, 67 S.Ct.

1146, 1152, 91 L.Ed. 1447 (1947). See also

Jones v. Rath Packing Co., 430 U.S. 519,

525, 97 S.Ct. 1805, 1309, 51 L.Ed.2d 604,

reh’g denied 431 U.S. 925, 97 S.Ct. 2201, 58

L.Ed.2d 240 (1977).

[5,6] There are two recognized grounds

for finding pre-emption of state legislation

by federal law.® The first is where Con-

gress has chosen to completely occupy the

field, to the exclusion of the states, in which

9%. State statutes can also be pre-empted by

Federal regulations properly promulgated un-

der a Federal statute when there is a conflict

between State and Federal regulations. See e.

8g. Jones v. Rath Packing Co., supra, 430 U.S. at

536, 97 S.Ct. at 1315.

A-21

case states may not regulate within the

field even when the regulation is in harmo-

ny with the federal scheme. Jones v. Rath

Packing Co., supra, 430 U.S. at 525, 97 S.Ct.

at 1309. The second is where, although

Congress has not completely foreclosed

state legislation in a particular area, the

state law conflicts with a valid federal stat-

ute. Ray v. Atlantic Richfield Co., supra,

435 U.S. at 158, 98 S.Ct. at 994.

Congressional intent to totally occupy a

particular field, precluding any state regu-

lation may be “explicitly stated in the [fed-

eral] statute’s language or implicitly con-

tained in its structure and purpose.” Jones

v. Rath Packing Co., supra, 430 U.S. at 525,

97 S.Ct. at 1309. See also City of Burbank

v. Lockheed Air Terminal, Inc., 411 U.S.

624, 633, 93 S.Ct. 1854, 1859, 36 L.Ed.2d 547

(1973).

(7] The Supreme Court in Rice v. Santa

Fe Railroad, supra, 331 U.S. at 230, 67 S.Ct.

at 1152, explaining that an implied congres-

sional intent could be “evidenced in several

ways”, stated that:

The scheme of federal regulation may be

so pervasive as to make reasonable the

inference that Congress jeft no room for

States to supplement it. [Citetions omit-

ted] Or the Act of Congress may touch a

field in which the federal interest is so

dominant that the federal system will be

assumed to preclude enforcement of state

laws on the same subject. [Citations

omitted] Likewise, the object sought to

be obtained by the federal law and the

character of obligations imposed by it

may reveal the same purpose.'®

Under the second form of pre-emption,

conflict voiding a state statute will be

found:

“where compliance with both federal and

A-22

state regulations is a physical impossibili-

ty ...,”" Florida Lime & Avocado Grow-

ers, Inc. v. Paul, 373 U.S. 132, 142-143, 83

S.Ct. 1210, 1217, 10 L.Ed.2d 245 (1963), or

where the state “law stands as an obsta-

cle to the accomplishment and execution

of the full purposes and objectives of

Congress.” Hines v. Davidowitz, 312 U.S.

52, 67, 61 S.Ct. 399, 404, 85 L.Ed. 581

(1941); Jones v. Kath Packing Co., supra,

430 U.S. at 526, 540-541, 97 S.Ct. at 1317.

Accord, De Canas v. Bica, 444 U.S. 351,

363, 96 S.Ct. 933, 940, 47 L.Ed.Zd 43

(1976).

Ray v. Atlantic .Richfield Co., supra, 435

U.S. at 158, 98 S.Ct. at 994-995.

{8} On occasion a pre-emption conflict

may be found absent-an actual conflict be-

tween state and federa] law, where it is

clear that Congress has addressed the issue

and decided that the particular field should

remain unregulated. As explained by the

Supreme Court in Bethlehem Steel Co. v.

New York State Labor Relations Board, 330

U.S. 767, 774, 67 S.Ct. 1026, 1030, 91 L.Ed.

1234 (1967) and recently reiterated in Ray

v. Atlantic Richfield Co., supra, 435 U.S. at

178, 98 S.Ct. at 1004-1005:

“where failure of ... federal officials

affirmatively to exercise their full au-

10. it must be kept in mind, however, that the

existence of pervasive and complex regulations

does not, in every case, demonstrate a Congres-

sional intent to completely occupy a particular

field. See New York Dept. of Socizl Services v.

Dublino, 413 U.S. 405, 415, 93 S.Ct. 2507, 2514,

37 L.Ed.2d 688 (1973), in which the Supreme

Court cautioned that:

The subjects of modern social and regulatory

legislation often by their very nature require

intricate and complex responses from Con-

gress, but without Congress necessarily in-

tending its enactment as the exclusive means

of meeting the problem ....

A-23

thority takes on the character of a ruling

that no such regulation is appropriate or

approved pursuant to the policy of the

statute,” States are not permitted to use

their police power to enact such a regula-

tion. Bethlehem Steel Co. v. New York

State Labor Relations Board, 380 U.S.

767, 774, 67 S.Ct. 1026, 1080, 91 L.Ed.

1234 (1947); Napier v. Atlantic Coast

Line R. Co., 272 U.S. 605, 47 S.Ct. 207, 71

L.Ed. 432 (1926).

However, as recently pointed out by

Judge Blumenfeld in Mobil Oil Corp. v.

Dubno, 492 F.Supp. 1004, 1010 (D.Conn.

1980) a Connecticut case also involving an

anti—pass through provision enacted in con-

junction with a gross receipts tax on oil

companies in that State:

[the] mere failure to regulate, in and of

itself, will rarely constitute an affirma-

tive federal decision that “no such regula-

tion is appropriate or approved” in light

of federal policy. Rather, “(the perti-

nent inquiry [is] whether [federal author-

ities have) addressed and acted upon the

question,” whether they have given

“careful consideration” to factors speci-

fied by Congress, 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., ... 485 U.S. at 174, 177, 98 S.Ct. at

1002, 1004.

Id. at 1010.

{9} Finally, it should be noted that a

state law cannot escape invalidation on

pre-emption grounds because its purpose

promotes a valid state interest if its effect

“frustrates the full effectiveness of federal

law.” Perez v. Campbell, 402 U.S. 687,

A-24

651-652, 91 S.Ct. 1704, 1712, 29 L.Ed.2d 233

(1971).

The Court explained in Perez that:

We can no longer adhere to the: abcrra-

tional doctrine ... that state law may

frustrate the operation of federal law as

long as the state legislature in passing its

law had some purpose in mind other than

one of frustration. Apart from the fact

that it is at odds with the approach taken

in nearly all our Supremacy Clause cases,

such a doctrine would enable state legis-

latures to nullify nearly all unwanted

‘federal legislation by simply publishing a

legislative committee report articulating

some state interest or policy-other than

frustration of the federal objective—that

would be tangentically furthered by the

proposed state law.

{10} Plaintiffs will be entitied to sum-

mary judgment on their pre-emption claims

pursuant to Rule 56 of the Fed.R.Civ.P. “if

the pleadings, depositions, answers to inter-

rogatories, and admissions on file, together

with the affidavits, if any, show that there

is no genuine issue as to any material fact

and that the moving [parties are] entitled to

judgment as a matter of law”. Fed.R.

Civ.P. 56(c).

After review of the papers submitted by

the parties to the actions and analysis of

the EPAA and the Price Regulations pro-

mulgated thereunder, the Court is of the

opinion that there are no genuine issues as

to any material fact on the pre-emption

issue, and finds that plaintiffs are entitled

to summary judgment on that claim."

THE EPAA AND THE FEDERAL

REGULATORY SCHEME

The Emergency Petroleum Allocation Act

Congress enacted the EPAA in 1973 in

A-25

response to the Arab oil embargo which had

created shortages of various petroleum

products which “constitute[{d] a national en-

ergy crisis which [was} a threat to the pub-

lic health, safety, and welfare and [could]

be averted or minimized most efficiently

and effectively through prompt action by

the Executive branch of Government.” 15

U.S.C. § 751(aX3).

The stated purpose of the Act was to:

... grant the President of the United

States and direct him to exercise specific

temporary authority to deal with short-

ages of crude oil, residual fuel oil, and

refined petroleum products or dislocations

in their national distribution system. .. .

(Emphasis supplied]

15 U.S.C. § 751(b).

As indicated in the preceding statutory lan-

guage, the EPAA was initially considered

by Congress to be a temporary measure

enacted to deal with an emergency situa-

tion on a national level.

The President was required under the

Act, to:

promulgate a regulation providing for the

mandatory allocation of crude oil, residu-

al fuel oil, and each refined petroleum

product in amounts specified in (or deter-

mined in a manner prescribed by) and at

prices specified in (or determined in a

manner prescribed by) such regulation.

15 U.S.C. § 753(a).

ll. There is no question but that ihe legal issues

raised in plaintiffs’ pre-emption claims are

complex. The Second Circuit, however, in

S.E.C. v. Research Automation Corp., 585 F.2d

31, 33 (2d Cir. 1978) has made it clear that

summary judgment is not necessarily inappro-

priate simply because the legal issues are com-

plex.

A-26

Authorization was granted under the

EPAA for the President to delegate his

authority under the Act “to such officers,

departments or agencies of the United

States, or to any State (or officer thereof),

as he deems appropriate.” 15 U.S.C.

§ 754(b).

The Department of Energy (DOE), was

created by Congress in August of 1977 (De-

pertment of Energy Organization Act, Pub.

L.No. 95-91, § 201, 91 Stat. 569 (1977), and

in February of 1978, the President delegat-

ed his authority under the Act to the Secre-

tary of Energy who at the present time has

control over the mandatory allocation pro-

gram. Exec. Order No.-i2038, 4) Fed.Reg.

4957 (Feb. 7, 1978).

While the actual promulgatioz. of regula-

tions under the EPAA was left to the Presi-

dent, Congress did set forth guidelines

defining the requisite area of coverage in

the form of objectives which the regula-

tions were to provide for “to the maximum

extent practicable”. 15 U.S.C. § 753(b)\(1).

Those objectives, set forth at 15 U.S.C.

§ 753(bX1XA)-(I) are:

(A) protection of public health (includ-

ing the production of pharmaccuticals),

safety, and welfare (including mainte-

nance of residential heating, such as indi-

vidual homes, apartments, and similar oc-

12 ‘The President first deieguted his authority

under the EPAA to the Federal Energy Office

(FEO) in December of 1973, Exec. No.

11748, 38 Fed.Reg. 33575. In June of 1974 the

President abolished the FEO and deleg:.ted his

authority to the Federal Energy Administ: ation

(FEA), which “ud Deen created by Congress in

the Federai Energy Administration Act of 1974,

Pub.L. 93-275, § 3, 88 Stat. 97 (1974). Exec.

Order No. 11790, 39 Fed.Reg. 23185 (June 27,

1974). Authority remained in the (FEA) until

delegated to the Secretary of Energy in 1978.

A-27

cupied dwelling units), and the national

defense;

(B) maintenance of all public services

(including facilities and services provided

by municipally, cooperatively, 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);

tions, including farming, ranching, dairy,

and fishing activities, and services direct-

ly related thereto; |

(D) preservation of an _ economically

sound and competitive petroleum indus-

try; including the priority needs to re-

store and foster competition in the pro-

ducing, refining, distribution, marketing,

and petrochemical sectors of such indus-

try, and to preserve the competitive via-

bility of independent refiners, small re-

finers, nonbranded independent market-

ers, and branded independent marketers;

(E) the allocation of suitable types,

grades, and quality of crude oil to refin-

erics in the United States to permit such

refineries Ww operate at ful) 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 re-.

finers, nonbranded independent market-

ers, branded independent marketers, and

among all users;

(G) allocation of residual fuel oil and

refined petroleum products in such

amounts and in such manner as may be

necessary for the maintenance of, explo-

ration for, and production or extraction

of-

A-28

(i) fuels, and

(ii) minerals essential to the require-

ments of the United States, and for

required transportation related thereto.

(H) economic efficiency; and

(I) minimization of economic distortion,

inflexibility, and unnecessary interfer-

ence with market mechanisms.

Congress, in addition, directed that:

In specifying prices (or prescribing the

manner for determining them), the regu-

lation under subsection (a) of this sec-

tion—

(A) shall provide for a dollar—for—dol-

lar pass through of net increases in the

cost of crude oil, residual fuel oil, and

refined petroleum products at all levels of

distribution from the producer through:

the retail level ....

In 1975, Congress added 15 U.S.C. § 760a

to the EPAA. Energy Policy and Conser-

vation Act. Publ.L.No.94—163, 89 Stat. 871

(1975). Whereas the imposition of alloca-

tion and price controls was mandatory un-

der the 1973 Act, this section gave the

President the authority to, in his discretion,

and in accordance with the guidelines and

procedural requirements set forth in the

law, exempt “crude gil, residual fuel oil, or

any refined petroleum product or refined

product category” from the price and allo-

cation regulations under the EPAA.

The criteria for amendment of regula-

tions under § 753(a) is a determination by

the President that:

such amendment is consistent with the

attainment to the maximum extent prac-

ticable, of the objectives specified in sec-

tion 753(bX1) of this title and that the

regulation, as amended, provides for the

attainment to the maximum extent prac-

A-29

ticable, of such objectives.

15 U.S.C. § 760a(b).

Before any amendment to the regulations

which pertains to either the allocation of or

the price or manner of determining the

price of crude oil, residual fuel oil or refined

petroleum product could be promulgated, it

had to be submitted for Congressiona] ap-

proval. 15 U.S.C. § 760a(CX1) and (2).4

The President was also required to sub-

mit in support of the proposed amendment

“a finding that such amendment [was] con-

sistent with the attainment of the objec-

tives specified in section 753(bX1) of this

title”, and in the case of a proposed a:nend-

ment to the price control regulations, “a

finding that market forces [were] adequate

to protect consumers and that exempting

such oil or refined product category [would]

not result in inequitable prices for any class

of users of such oil or product.” 15 U.S.C.

§ 760a(d)1).

In addition, the President was required Wo

submit with each proposed amendment a

statement of his views as to:

“the potential economic impact (if any) of

such amendment which, where practica-

ble, shall include his views as to—

(i) the State and regional impacts of

such amendment (including <ffects on

governmental units);

(ii) the effects of such amendment on

the availability of consumer goods and

services; the gross national product;

competition; small business; and the

supply and availability of energy re-

sources for use as a fuel or as feedstock

for industry; and

13. Effective May 31, 1979, proposed amend-

ments exempting products from the mandatory

allocation and price regulations need not be

submitted for Congressional approval. 15

U.S.C. § 760g; 44 Fed.Reg. 19425 (1979).

A-30

(iii) the effects on employinent and

consumer prices; and

(B) in the case of an exemption [from the

price control regulations] an analysis of

the effects of such amendment on the

rate of unemployment for the United

States, the Consumer Price Index for the

United States, and the implicit price de-

flator for the gross national product.

15 U.S.C. § 760a(d)\{2).

Under the 1975 amendment to the EPAA,

the President was also given standby au-

thority to at any time reimpose allocation

and price control regulations on any previ-

ously exempted oil or refined product “upon

a determination by him that such regula-

tion or order is necessary to attain, and is

consistent with, the objectives specified in

section 753(bX1) of this title.” 15 U.S.C.

§ 760a(f).

Federal Regulation Under the EPAA

Comprehensive regulations governing the

allocation and pricing of petroleum prod-

ucts were promulgated and implemented in

response to the EPAA mandate. The pe-

troleum pricing regulations, at subpart E,

10 C.F.R. §§ 2121.81-85 control the prices

charged by refiners for petroleum products

and specify the method to be used in com-

puting price increases.

Under the pricing regulations the “maxi-

mum allowable price” which refiners can

charge for covered products is “the weight-

ed average price at which the covered prod-

uct was lawfully priced in transactions with

the class of ru.ch»ser concerned on May 15,

1978, ... plus increased product costs and

increased non-product costs incurred be-

tween the month of measurement and the

month of May 1978”. 10 C.F.R. § 212.82.

A-31

Initially, the regulations allowed refiners

to pass-through non-product costs only

upon notification to and approval of the

FEA, the agency to which the President

had first delegated his authority under the

EPAA. However, in December of 1974 the

FEA amended the regulations by recogniz-

ing eight specific categories of increased

non-product costs, which refiners could

pass-through without prenotification. 39

Fed.Reg. 42368 (December 5, 1974). The

amendment also left-the door open to seek

agency permission for the pass-through of

“disproportionately high non—product cost

increases which {dic} not fall into one of the

categories defined by FEA”, on a case—by—

case basis. Id.

In January of 1977, the regulations con-

cerning the pass-through of non—product

costs were further amended to add addi-

tional categories.“ 42 Fed.Reg. 5023 (Janu-

ary 27, 1977). As a result of this amena-

ment, refiners were and are presently al-

lowed to include in the price of covered

products the dollar amount of their in-

creased costs for “federal, state, and local

property, excise, franchise and other similar

taxes”. 10 C.F.R. § 21283(c\2)iiiXEX7).

The regulation specifically provides that

“(fjederal, state and local income taxes are

not includable in this amount”. Id.

The regulations also dictate the manner

in which allowable cost increases are to be

allocated among a refiner’s customers. 10

C.F.R. § 212.83(c) and (h). The ~eqval ap-

plication rule”, at 10 C.F.R. § 212.83(h) en-

courages refiners to allocate increases

equally among classes of purchasers by re-

quiring that the refiner in determining the

amount of its unrecouped cost increases to

arrive at the maximum allowable price

which can be charged in the subsequent

month,

7’

A-32

... Shall calculate its revenues as though

the greatest amount of increased costs

actually added to any May 15, 1978, sell-

ing price of the product concerned and

included in the price charged to any class

of purchaser, had been added, in the same

amount, to the May 15, 1973, selling price

of that product and included in the price

charged to each class of purchaser.

Id.

{11} In other words, even if a refiner

has not applied cost increases equally

among all-classes of purchasers, the refiner

will be deemed to have done so and will not

have the deemed amounts available for fur-

ther increases,"*

At the present time only automotive gas-

oline, propane and certain natural gas liq-

uids remain subject to the previously de-

scribed price control regulations (10 C.F.R.

§§ 210.35, 212.56-62); all other petroleum

products having been exempted in accord-

ance with the procedures set forth at 15

U.S.C. § 76Ua."*

In each instance in which an administra-

14. For a complete list of non-product costs

which may be included is: the price of covered

products see 10 C.F.R. § 212.83(cX2XiiiKE).

15. The non product cost increases cannot nec-

essarily be included in product prices immedi-

ately as incurred. Rather the costs are placed

in the refiners “bank”, to be passed through in

accordance with the price control regulations

at 10 C.F.R. § 212.83(c). Both actual price

increases and increuses deemed to have oc-

curred under the equal application rule reduce

the amount in the refiners “bank”. Thus, a

refiner is penalized for failure to apply cost

increases equally to all classes by the reduction

in its “bank” for cost increases not actually

made.

The regulations at 10 C.F.R. § 212.83(f) set

forth the sequence in which increased costs

shall be deemed to have been recovered.

A-33

tive decision has been made to exempt a

particular petroleum product from regula-

tion, it has been based upon findings (1)

that the product is not in short supply; (2)

that deregulation will not have an adverse

impact on supply; (3) that competition and

market forces provide adequate protection

for consumers (or possibly greater protec-

tion); (4) that exemption will not result in

inequitable prices for any class of users;

and (5) that exemption is consistent with

the attainment of the objectives set forth at

section 4(bX1) of the EPAA.

It should be noted that the price control

regulations on presently exempt petroleum

products have not been repealed, but rather

have been “in effect converted to standby

status, so that in the event of shortages or

other occurrences which might require

reimposition of controls, they may be quick-

ly put into effect.” 41 Fed.Reg. 30096,

$0098 (July 22, 1976).!"

ANALYSIS OF PLAINTIFFS’

PRE-EMPTION ARGUMENT

The anti-pass through provisicn con-

tained in the New York gross receipts tax

legislation applies both to petroleum prod-

16. The products which have been exempted are

residual fuel oil, 41 Fed.Reg. 13896 (April 1,

1976); No. 2' heating oil and No. 2-D diesel

fuel, 41 Fed.Reg. 24518 (June 16, 1976); No. 1

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

4: Fed.Reg. 24518 (June 16, 1976); naphthas,

gas oils, benzene, greases, hexane, lubricant

base oil stocks, lubricants, special naphthas

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

other finished products, 41 Fed.Reg. 30096

(July 22, 1976); aviation turbine fuel (naphtha -

based and kerosene-base) 4] Fed.Reg. 40452

(Sept. 20, 1976); aviation fuel (kerosene-type)

and aviation gasoline, 44 Fed.Reg. 7070 (Feb. 5,

1979); and butane and natural gasoline. 44

Fed.Reg. 70118 (Dec. 6, 1979) Codified at 10

C.F.R. § 210.35.

i |

A-34

ucts which are currently subject to the fed-

eral price control regulations and those

which are presently exempt. Plaintiffs’

pre-emption claims extend to both.

Applicable Test of Pre-cmption

Plaintiffs rely upon both of the judicially

recognized grounds for pre-emption of

state law by Federal statutes and regula-

tions. Defendants, however, contend that

the question of pre-emption is not to be

resolved through application of the “exclu-

sive occupation” or “conflict” tests re-

peatedly articulated by the Supreme Court

in Supremacy Clause cases, but rather ex-

clusively through application of section 6b)

of the EPAA, 15 U.S.C. § 755(b). That

section provides that:

The regulation under section 753 of this

title and any order issued thereunder,

shall preempt any provision of any pro-

gram for the allocation of crude oil, resid-

ual fuel oil, or any refined petroleum

product established by any State or local

government if such provision is in conilict

with such regulation or any such order.

Furthermore, defendants asscrt that the

term “conflict” as used in section Gb) is

restricted to actual conflicts. Thus, accord-

ing to defendants, the traditional judicial

use of the term “conflict” as including in-

stances where the consequences of a state

law “sufficiently injure the objectives of

the federal program”, Hisquierdo v. His-

quierdo, 439 U.S. 572, 583, 99 S.Ct. 802, 809,

59 L.Ed.2d 1 (1979) is improper in these

cases.

17. 41 Fed.Reg. 30096, 30098 (July 22, 1976)

concerns the exemption from price controls of

naphthas and gas oils. The agency reports on

the exemption of other products contain similar

language cc..e*f'ng the conversion of the reg-

ulations to standby status. See n. 16, supra,

for Federal Register citations relating to specif-

ic exemption determinations.

A-35

Defendants in asserting their position,

rely on state court cases interpreting sec-

tion 6(b) as well as a letter written by the

Acting General Counsel of the DOE apply-

ing the actual conflict standard. Plaintiffs

dispute the correctness of defendants’ defi-

nition of “conflict” in section 6(b) and argue

that, in any event, the section does not

constitute the sole test of pre-emption in

these cases. The Court agrees.

[12] Any possibility that the existence

of a specific pre-emption provision in Fed-

eral legislation precludes application of the

general pre-emption principles is quickly

dispelled by the decision of the Supreme

Court in Jones v. Rath Packing Co., supra.

The Court in Jones, after concluding that

an express pre-emption provision did not

invalidate a state law, found that the find-

ing did not resolve the case because the

Court still had to “determine whether the

state law stands as an obstacle to the ac-

complishment and exccution of the full pur-

poses and objectives of Congress”. Id. 430

U.S. at 540-541, 97 S.Ct. at 1317.

Defendants’ reliance on Governor of the

State of Maryland v. Exxon, 279 Md. 410,

370 A.2d 1102 (1977), aff'd on other

grounds, 437 U.S. 117, 98 S.Ct. 2207, 57

L.Ed.2d 91 (1978) which found section 6({b)

provided the sole test for pre-emption is

misplaced, since that case was decided prior

to Jones which dictates a contrary result.

{13] Nor does the letter written by the

Acting General Counsel for DOE in which

he, relying exclusively on the section 6(b)

pre-emption test, opined that the state

anti—pass through provision did not conflict

with the EPAA and its regulations, dictate

a finding by this Court that section 6(b)

A-36

provides the exclusive pre-emption test."*

While interpretation of statute by the agen-

cy charged with its administration is “enti-

tled to substantial deference”, Quern v.

Mandley, 436 U.S. 725, 738, 98 S.Ct., 2068,

2076, 56 L.Ed.2d 658 (1978), it is clearly not

decisive in every instance. ‘The Supreme

Court in Skidmore v. Swift & Co., 323 U.S.

134, 140, 65 S.Ct. 161, 164, 89 L.Ed. 124

(1944), explained that:

... Pulings, interpretations and opinions

of the Administrator under [an] Act,

while not controlling upon the courts by

reason of ‘their authority, do constitute a

body of experience and informed judg-

ment to which courts and litigants may

properly resort for guidance. The weight

of such a judgment in a particular case

will depend upon the thoroughness evi-

dent in its consideration, the validity of

its reasoning, its consistency with earlier

and later pronouncements and all those

factors which give it power lo persuade if

lacking power to control. (Emphasis sup. 4

plied)

Before applying the foregoing standard

to the Acting General Counsel’s Ictter in

this case, it should be pointed out that the

DOE itself places relatively little weight on

communications of this type. The regula-

tions at 10 C.F.R. §§ 205.80-.86 set forth

the procedure for obtaining official DOE

interpretations. Those procedures were not

18. The letter was written by Eric J. Fygi, Act-

ing General Counsel of the DOE cn June 10,

1YHU, in response to a letter of the same date

from the Governor of New York State, seeking

an opinion as to whether the anti pass through

provision would conflict with the EPAA and

the regulations promulgated thereurder.

Although section Gb) was not specifically

referred to, it is clear that it was relied upon

exclusively by Mr. Fygi in reaching his determi-

nation.

A-37

followed with regard to the opinion letter

relied on by defendants in these cases.

With respect to the type of opinion letter

relied upon by the defendants herein, 10

C.F.R. §§ 205.80 provides that:

Responses, which may include verbal or

written responses to general inquirics or

to other than formal written requests for

interpretations filed with the General

Counsel or his delegate or a Regional

Counsel, are not interpretations and

merely provide general information.

(Emphasis supplied)

Under the Skidmore test, the opinion let-

ter is entitled to little weight with regard

to the pre-emption issue. After concluding

that the anti-pass through provision was

not pre-empted by Federal law, the author

of the letter offered three caveats, one of

which was that the time constraints he was

under in responding to the request for an

opinion, “did not permit an exhaustive anal-

ysis of the question”. Thus, by his own

admission, the Acting General Counsel's

consideration of the pre-emption issue was

less than thorough.

Furthermore, as shall be demonstrated at

a later point, the conclusion reached in the

letter is inconsistent with expressions of

agency policy contained in several earlier

DOE administrative opinions. Finally, the

Court is convinced that the conclusion in

the letter was, in light of Jones, reached

either without reference to, or through the

incorrect application of, judicially deter-

mined pre-emption principles.

Thus, the plaintiffs are not limited to

section 6(b) in pursuing their pre-emption

claims but rather are free to rely upon both

of the judicially accepted grounds for pre-

emption as well. However, since the Court

is of the opinion that the anti—pass through

provision must be invalidated under the

°°?

A-38

“conflict” standard, it will be unnecessary

to determine whether Congress intended

exclusive Federal control over the allocation

and pricing of petroleum products, exclud-

ing the State from exercising its police

power in those areas.”

The Pre-emption Conflict as to “Non-Ex-

empt” Petroleum Products

As one of ‘the sponsors of the EPAA,

Senator Henry Jackson stressed that it was

crucial that Congress “build a coordinated

‘and rational fuels and energy policy”. 119

Cong.Rec. 12317, quoted in S.Rep.No. 93—

159, 938d Cong., 1st Sess. 21 (1973). Later,

as floor manager of the bill, the Senator

warned that:

({I}f the Federal Government fails to es-

tablish effective regional or national al!o-

cation plans, we will invite piccemeal ac-

tion by the States. Our fuel shortage

problems are national problems; they

must be recognized and resolved at the

Federal level.

119 Cong.Rec. 17764 (1973).

Recognizing that the “self-regulating

laws of supply and demand [were] not cur-

rently operating in the petroleum product

market”, the House Committee on Inter-

state and Foreign Commerce concluded that

it was “imperative that the Federal govern-

ment ... accept its responsibility to inter-

vene in these markets to preserve competi-

tion”. H.R.Rep.No. 93-159, 98d Cong., 1st

19. In keeping with the traditional judicial reluc-

tance to find Federal pre cmption of a State's

exercise of police power (See Ray v. Atlantic

Richfield, Co., supra ), the Court has attempted

tu make its finding of pre-emption in these

cases On as narrow a ground as possible. In

any event, the fact that Congress included an

express pre-emption provision which did not

result in occupation of the entire field, makes it

unlikely that plaintiffs would be successful on

that pre-emption ground.

A-39

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

Admin.News, pp. 2582, 2586.

As previously noted, one of the express

statutory objectives to be considered in the

promulgation of mandatory allocation and

price regulations was the “equitable distri-

bution of ... refined petroleum products at

equitable prices among all regions and ar-

eas of the United States. 15 U.S.C.

§ 753(bX1Xf). Explaining the Congression-

al intent with regard to equitable prices,

the Congressional conferecs stated that:

The reference to equitable prices in the

bill is specifically intended to emphasize

that one of the objectives of the mandz-

tory allocation program is t prevent

price gouging or price discrimination

which might otherwise occur on the basis

of current shortages. On the other hand,

it is contemplated that prices for allocat-

ed fuels will be set at levels or pursuant

to methods which will permit adequate

compensation to assure that private prop-

erty is not implicitly confiscated by the

government. Most importantly, the Pres- |

ident must, in exercising his authority,

strike an equitable balance Setween the

sometimes conflicting needs of providing

adequate inducement for the production

of an adequate supply of product and of

holding down spiraling consumer costs.

(Emphasis supplied)

H.R.Conf.Rep.No. 93-628, 98d Cong., Ist

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

Admin.News, pp. 2702-2708.

Thus, it is clear that Congress looked

upon the EPAA as legislation directing the

establishment of a flexible national pro-

gram for dealing with what was hoped to

be a temporary crisis in an equitable man-

ner, providing to the greatest extent poesi-

ble for a belancing of the interests of both

A-40

consumers and refiners of petroleum prod-

ucts.

Plaintiffs contend that the anti-pass

through provision stands as an obstacle to

the fulfillment of that Congressional goal

and charge more specifically that the provi-

sion conflicts with the mandatory Federal

price regulations by not allowing refiners

and sellers of petroleum products to recap-

ture increased costs engendered by state

franchise taxes on a dollar—for—dollar ba-

sis." According to plaintiffs, the New

York gross receipts tax is a franchise tax

which falls within that group of taxes

which may under the regulations be passed

on to purchasers of petroleum products

through increase in prices. 10 C.F.R.

§ 212.83(cX2XiiiXEX7). The anti—pass

through provision, however, prevents the

plaintiffs from passing on that: cost in the

prices charged for products sold within New

York State.

Thus, recovery of increased costs incurred

as a result of the gross receipts tax will be

limited to amounts which could be passed

through to purchasers in other states.

However, plaintiffs argue that under the

Federal regulations they will not he able to

recover the entire amount from out-of-

state purchasers because of the equal appli-

cation rule. 10 C.F.R. § 212.83(h). Under

20. Plaintiff NEPCO alleges in its complaint that

its New York sales are limited to residual fuel

oil, presently exempt from regulation under the

EPAA. Therefore, the discussion concerning

nonexempt products does not apply to NEPCC.

21. Plaintiffs in the Mobil Oil case allege in

addition that the anti-pass through provision

conflicts with the mandatory price regulations

by imposing a sequence of cost recovery in

conflict with the sequence set forth in the Fed-

eral regulations at 10 C.F.R. § 212.8X(f). it

will, however, be unnecessary for the Court to

reach that argument.

A-41

that rule, as previously explained, New

York prices would be deemed to have in-

creased in the same amount as those in

other states, and that amount would be lost

from plaintiffs’ “banks” and unava’lable for

future recovery.

Defendants argue in response ti.at (a) the

New York gross receipts tax is not one

which may be passed on to purchasers un-

der 10 C.F.R. § 212.83(cX2)iiiXE\7), and (b)

the Federal price control regulations merely

set “maximum allowable prices” and bestow

no right upon refiners and seller: to charge

those prices. The Court finds both of

these arguments unconvincing.

In asserting the position that the New

York gross receipts tax is not one which can

be passed through under 10 C.F.R. § 212.-

83(c\2XiiiXEX7), defendants argue that the

intent behind the regulation allowing the

pass throu_h of certain taxes (i. e., proper-

22. Defendants also renew the argument first

made in conjunction with the motion to dismiss

that the anti-pass through provision is not a

price control measure bocause although it ad-

mittedly has an incidental effect on price, it

does not “fix” prices. Rather, defendants

claim it is a “rule of tax incidence”, and as such

should not be pre-empted by Federal law in

this instance.

The Court remains convinced that regardless

of the terminology employed by defendants, the

anti-pass through provision is indeed a price

control measure. See United States v. Socony-

Vacuum Oil Co., 310 U.S. 150, 222-223, 60

S.Ct. 811, 844, 84 L.Ed. 1129 (1940) (finding

that under the Sherman Antitrust Act price

naetah Gaia: Mack COMMEGIEE Geen

inflexible prices); Perez v.

402 U.S. at 651-652, 91 ce os 1785 ee-ame-

tion is not determined by reference to state

statutory labels).

F.Supp. at 1013 n. 10.

° A-42

ty, excise, franchise and similar taxes) while

not permitting the pass through of income

taxes was to distinguish between those tax-

es which the taxing authority expected to

be passed on and those which were to be

born by the taxpayer. Defendants then

reason that the regulation should, there-

fore, be read as a presumption to operate

only in the absence of an explicit expression

of intention. Defendants, however, fail to

offer support for this theory.

[14] Defendants also seem to suggest

that the gross receipts tax, because it taxes

all receipts and not merely receipts from

sales, is actus!iy along the lines of an in-

‘come tax, and cannot be passed through

under 10 C.F.R. § 212.83(cX2XiiiXEX7) on

that basis.“ Neither is this claim convinc-

ing, especially in light of the following stat-

utory language contained in the tax legisla-

tion:

§ 182 Additional franchise tax on certain

oil companies. 1. Notwithstanding any

other provision of this chapter, or of any

other law, an annual tax is hereby im-

posed upon every oil company ... for the

privilege of exercising its corporate fran-

chise .... (Emphasis supplied)

L.1980, ch. 271, § 4.

The foregoing language establishes to the

satisfaction of this Court that the gross

receipts tax is a state franchise tax which

falls within that group of taxes which may

23. Defendants recognize that no deductions are

aliuwed as they gencrally are with an income

tax, but in support of their argument that the

gross receipts tax is an income tax, justify the

failure to allow deductions by the low tax rate.

A-43

be passed through under 10 C.F.R. § 212.-

83(c2\iiiKEX(7).™

Defendants argue, however, that even if

the regulation allows plaintiffs to increase

prices of non-exempt peiroleum prrducts to

reflect costs incurred by the New York

gross receipts tax, it does not give them an

absolute right to do so. Rather, according

to defendants, the regulations merely estab-

lish “maximum allowable prices”, and,

therefore, no conflict is presented by the

State’s setting more restrictive price limita-

tions. Defendants’ position simply does not

hold up under scrutiny.

{15} As previously noted, Congress, in

directing the President to promulgate man-

datory allocation and price regulations un-

der the EPAA, provided him with guide-

lines in the form of a list of objectives to be

met to the “maximum extent practicable”.

15 U.S.C. § 753(bX1XA)4{I). Therefore, in

determining whether the anti—pass through

provision “stands as an obstacle to the ac-

complishment and execution of the full pur-

poses and objectives of Congress”, Ray v.

24. Defendants point out that 10 C.F.R. § 212.-

83(c\X2XiiiKEX7) allows only taxes which are

attributable to refining operations to be passed

through. Since the New York gross receipts

tax taxes all of an oil company’s receipts, and

not just those attributable to refining opera-

tions, defendants suggest that there is a materi-

al issue of fact precluding summary judgment

as to what portion, if any, of the gross receipts

tax can be passed through as atiributabl: to

refining operations.

The Court, however, does not agree that this

question raises a material issue of fact. Even if

oil companies could not pass through all of the

costs incurred through the tax, any proportion

allucatable to refining (and clearly some por-

tion would be) which could be passed through

but for the anti-pass through provision

presents a conflict problem.

A-44

Atlantic Richfield Co., supra, the Court

must look not only at particular the regula-

tion but at the objectives which the agency

sought to further by its promulgation.* If

the consequences of the anti-pass through

provision “sufficiently injure the objectives

of the federal program”, Hisquierdo v. His-

quicrdo, supra, a conflict must be found and

the provision invalidated under the Su-

premacy Clause. Such a conflict exists in

this instance with regard to non-exempt

petroleum products.

The regulations involved in plaintiffs’

pre-emption challenge are 10 C.F.R. § 212.-

83(ch2\iiiXEX7) and the equal application

rule. 10 C.F\R. § 212.83(h). One of the

objectives at 15 U.S.C. § 753(bX]), the

“preservation of an economically sound and

competitive petroleum industry”, [15 U.S.C.

§ 753(b1\(D)] is furthered by allowing re-

finers to pass through. those taxes which are

recognized as costs of doing business. 10

C.F.R. § 212.83(cX2\iiiXEX7). By preclud-

ing the pass through of the New York gross

reccipts tax to purchasers in New York, the

anti—pass through provision conflicts with

the articulated policy allowing the pass

through, and the more general Congression-

al intent that prices for petroleum products

“be set ... pursuant to methods which will

permit adequate compensation to assure

that private property is not implicitly con-

fiscated by the government”. H.R.Conf.

Rep.No. 93-628 supra, U.S.Code Cong. &

Admin.News 1973, p. 2703.

25. Referring to the objectives set forth at 15

U.S.C. § 753(b)1), the Temporary Emergency

Court of Appeals in Mobil Oil v. Department of

Energy, 610 F.2d 796, 801 (Em.App.1979) ex-

plained that:

No single factor is inherently more important

than any of the other factors. Instead, as

this Court has held, all nine factors are to be

balanced objectively.

A-45

Another of the objectives, set forth at 15

U.S.C. § 753(bX1XF), provides for the “eq-

uitable distribution of ... refined petrole-

um products at equitable prices among all

regions and areas of the United States”.

The equal application rule exists to help

insure equitable pricing on a national basis.

The application of the rule, and the detri-

mental effect that it would have on the oil

companies’ ability to increase prices on a

dollar-for—dollar basis to cover costs in-

curred through the imposition of the New

York gross receipts tax have already been

explained.*

[16] However, perhaps even more cru-

cial than the harm which would be done to

plaintiffs through application of the rule,

which ‘in itself suggests.an impermissible

conflict, is the fact that ‘he anti-pass

through provision flies in the face of the

specific Congressional objective which the

equal application rule was enacted to fur-

ther. While the Federal policy supports

“equitable distribution” and “equitable

prices” among “all regions and areas of the

United States”, 15 U.S.C. § 753(bX1\F),

New York is seeking to insulate its citizens

from increased costs resulting from a local

tax while allowing the burden of the tax to

26. Defendants suggest that there is no conflict

in these cases with regard to the equal applica-

tion rule because plaintiffs presently have

“banks” which are so large that it is unlikely

they will be depleted by the time price controls

expire in September of 1961, and the only ma-

terial aspect of the rule is to reduce those

“banks”.

While defendants assert that the size of

plaintiffs’ “banks” raises a material issue of

fact, the 'orn.. orce again disagrees. The con-

flict exists regardless of the size of plaintiffs’

“banks”.

A-46

fall upon the shoulders of non—New York-

ers. :

Such a result frustrates, not only express

Congressional policy, but thwarts the artic-

ulated DOE policy of waiving the equal

application rule and allowing local] taxes to

be passed through solely to customers with-

in the taxing jurisdiction. In Mobil Petro-

leum Company, 5 DOE § 81, 188 at 82, 989

(1977) the DOE found that a Guam gross

receipts tax could be recovered solcly in the

taxing jurisdiction, reasoning that:

- {If Mobil Petroleum were required to

recover a portion of the Guam gross re-

ceipts tax by increasing its prices for

covered products sold to purvhasers cut-

side the territory of Guam, those non-

Guamian purchasers would in effect be

required to bear a portion of the buiden

of a Guamian tax on Guamian consump-

tion of petroleum products. This result

would frustrate one of the ohjectives that

Congress sought to further in the Emer-

gency Petroleum Allocation Act of 1973

(EPAA), Pub.L. No. 98-159, that of pro-

viding for the “equitable distribution of

... refined petroleum products at equita-

ble prices among all regions and areas of

the United States.” (citation omitted)

A-47

Because the anti—pass through provision

conflicts in the manner discussed with 10

C.F.R. §§ 21283(cX2XiiiXEX7) and 212-

8X%h), as well as the aforementioned objec-

tives at 15 U.S.C. §:75&(bX1XD) and (F) and

the Congressional intent as expressed in the

legislative history, its validity cannot be

uphcld under the Supremacy Clause with

regard to petroleum products presently sub-

ject to the mandatory price controls.”

The Pre-emption Conflict as to “Exempt”

Petroleum Products

As already pointed out, the 1975 amend-

ment to the EPAA gave the President, or

his delegate, the authority to exempt petro-

leum products from regulation in accord-

ance with the procedures contained in 15

U.S.C. § 760a. Many of the petroleum

products subject to the New York gross

receipts tax are presently exempt from reg-

ulation. As also previously noted, plaintiffs

claim that the anti-pass through provision

passed in conjunction with that tax is pre-

empted as to those exempt products be-

cause it conflicts with the Federal regula-

tory policy under the EPAA.

An almost identical pre-emption issue

was recently before the District Court in

Connecticut in Mobi! Oil v. Dubno, supra.

The State of Connecticut enacted legisla-

allocation of ... petroleum products”. How-

A-48

tion imposing on oil companies a two per-

cent tax on their gross receipts from sales

in Connecticut. Section 18(a) of the Con-

necticut legislation contained a statement

that the intent of the legislation was that

the tax would constitute a part of each

company’s operating overhead. Section

13(b) forbids companies from raising whole-

sale prices in Connecticut on petroleum

products presently exempt from regulation,

by any higher amount than the average

amount by which it raises prices “in all

ports on the eastern coast of the United

States.” Id., 492 F.Supp. at 1006.

Judge Blumenfeld found that section

13(b) was a price control mechanism which

frustrated the effectiveness of Federal law

in a number of ways. He proceeded to

declare the section unconstitutional as in

violation of the Supremacy Clause.

There are obvious differences in the legis-

lation, although none quite so drastic as

defendants would have the Court believe.

In fact, the Court sees none which in itself

would dictate a contrary result in this ac-

tion. If anything, the New York anti—pass

through constitutes an even more imposing

price control regulation in that it applies to

both exempt and non-exempt petroleum

products and, in addition, attempts to total-

ly insulate New York from any of th2 bur-

den of the tax, thus creating the possibility

for even more severe market distortion

than with the Connecticut case.

The decision in Mobil Oil Corp. v..Dubno,

was reached after a thorough analysis of

the legislative history of the EVAA, the

statutory language, and the regulations

themselves. As discussed below, this Court

believes that the decision in Dubno is cor-

rect, and that Judge Blumenfeld’s analysis

is for the most part applicable in these

cases.

A-49

Plaintiffs in these actions argue that in

choosing to exempt certain petroloum prod-

ucts from price control regulations, the

DOE (or predecessor agency) did not intend

to cease regulating with regard to those

products,” thereby presumably leaving the

area wide open for the imposition of state

regulation. Instead plaintiffs contend, the

Federal authorities have “ ‘addressed and

acted upon the question’”, and after giving

“ ‘careful consideration’ to factors specified

by Congress, they have determined that no

regulation, or limited regulation, is the

proper way of achieving federal goals”.

Mobil Oil Corp. v. Dubno, supra, 492

F.Supp. at 1010, quoting in part from Ray

v. Atlantic Richfield Co., supra.

Furthermore, plaintiffs assert, allowing

operation of the anti—pass through provi-

sion would frustrate the satisfaction of the

objectives set forth in the EPAA at 15

U.S.C. § 753%(bX1). There is ample support

for plaintiffs’ position in the legislative his-

tory of the Act, the statutory language and

the manner in which the regulations have

been converted to standby status with the

DOE maintaining a close watch over supply

and market conditions.

When enactment of the EPAA was origi-

nally being considered by Congress, the

Committwe conferees noted that:

The committee recognizes that [price con-

trols} necessarily distort the economy and

interfere with a free market mechanism.

It is the intent of this legislation that

29. Plaintiffs in the Mobil Oil case rely for sup-

port on the decision in Consumers Union of U.

S., Inc. v. Sawhill, 525 F.2d 1068 (Em.App.

1975) (en banc), in which a regulation which

directed that prices be allowed to be deter-

mined by free market was still classified by the

Court as a regulation within section 4a) of the

CVAA.

A-50

economic distortion and interference be

minimized to the extent practicable. The

President should assure himself that his

actions interrupt existing supply mecha-

nisms only when necessary to permit the

accomplishment of [EPAA] objectives.

H.R.Conf.Rep.No. 93-628, 93d Cong., Ist

Sess. 24 (1973), U.S.Code Cong. & Admin.

News 1973, p. 2701. Thus, it is clear that

Congress considered price controls a neces-

sary (but hopefully temporary) evil.

While the EPAA was enacted as a tempo-

rary measure to deal with a crisis situation

during discussions, in 1975, concerning the

enactment of the Energy Policy and Con-

servation Act (EPCA), Publ.L. No. 94-163,

89 Stat. 871 (1975), Congress recognized

that:

The fundamental reality is that this na-

tion has entered a new era in which ener-

gy resources previously abundant, will "v-

main in short supply, retarding our eco-

nomic growth and necessitating an alter-

ation in our life’s habits and expectations.

The Arab embargo raised public con-

sciousness of energy problems and under-

scored more effectively than could any

other event the need for policy decisions

at the national level. (Emphasis sup-

plied)

H.R.Rep.No. 94-340, 94th Cong., 1st Sess.,

reprinted in [1975] U.S.Code Cong. & Ad-

min.News, pp. 1762, 1963.

The recognition on the part of Congress

that the United States was entering a new

era with regard to energy resources which —

necessitated a national energy policy belies

defendants’ argument that the 1975 amend-

ment to the EPAA signaled a return to the

status quo ante, allowing states to regulate

freely with regard to petroleum products.

While defendants correctly point out that

A-51

in amending the EPAA in 1975, Congress

intended “a gradual return to an unregulat-

ed market”, S.Conf.Rep.No. 94-516, 94th

Cong., 1st Sess. 208 (1975), U.S.Code Cong.

& Admin.News 1975, p. 2045, the return to

a petroleum market totally unfettered by

Federal controls has not yet occurred even

as to exempt products.

Just as the price control regulations

themselves rhust provide for the satisfac-

tion of the objectives set forth at 15 U.S.

§ 753(bX1), any decision to exempt a prod-

uct from the regulations must likewise be

based upon “a finding that such amend-

ment is consistent with the attainment of

the objectives specified in section 753(bX1)

--e» 15 U.S.C. § 760a(dX1). Therefore,

exempting a product from the price control

regulations, rather than constituting an end

to Federal regulation over those products,

represents an affirmative administrative

determination that “no such regulation is

appropriate ... pursuant to the policy of

the statute ...,” Ray v. Atlantic Richfield

Co., supra. Sec also Mobil Oil Co. v. Dubno,

supra.

Furthermore, agency action taken thus

far under 15 U.S.C. § 760a has reflected a

cautious, watchful approach to deregula-

tion. As previously noted, price control

regulations formerly applicable to presently

exempt products have not been repealed

but put on standby status to allow quick

reactivation if necessary. In addition, the

DOE has continued to closely monitor the

market situation with regard to the exempt

products.” This Court is not required to,

nor is it in a position to, make a finding as

30. For example, a public hearing was sched-

uled in 1977 on the need for a price monitoring

system for middle distillates. Such a system

was adopted. 42 Fed.Reg. 54444 (Oct. 6, 1977).

A-52

to when, if ever, a return to an unregulated

market will occur. It may be on September

$0, 1981, the date presently set for expira-

tion of Federal price controls. 15 U.S.C.

§ 760g. Then again, in light of the Con-

gressional recognition that the United

States has entered a “new era” necessitat-

ing “policy decisions [with regard to energy

resources} at the national level”, H.R.

Rep.No. 94-340, supra, U.S.Code Cong. &

Admin.News 1975, p. 1762, Federal control

may extend far beyond that date.

In any event, at the present time, regula-

tory control over even the exempt petrole-

um products is, as previously demonstrated,

still substantial. As with the Connecticut

price control legislation, the anti—pass

through provision in the New York gross

receipts tax “frustrates the full effective-

ness” of the present Federal regulatory pol-

icy under the EPAA in several ways.

Aside from imposing price controls in an

area which Federal authorities have deter-

mined should be free of price regulation,

the anti-pass through provision conflicts

with the objectives which the Federal agen-

cies were obligated to consider in making

decisions to deregulate. Just as was recog-

nized in Mobil Oil Co. v. Dubno, supra, 492

F.Supp. at 1014:

preventing suppliers from fully recover-

ing, through prices charged in [New

York], the true economic cost of products

sold in [New York] ... will induce sup-

pliers to sell. their rcroducts in other

states, risking the very “supply problems”

and “market distortions”, that DOE in

removing controls, endeavored to elimi-

nate.

The provision presents a serious threat to

the “equitable distribution of ... refined

A-53

petroleum products at equitable prices

among all regicns and areas of the United

States,” 15 U.S.C. § T53(bX1XF), and

“stands as an obstacle to the accomplish-

ment and execution of the full purposes and

objectives of Congress” in enacting the

EPAA. Ray v. Atlantic Richfield Co., su-

pra™

Because the anti-pass through provision

conflicts with the Federal policy under the

EPAA ‘with regard to presently exempt pe-

troleum products in the foregoing manner,

its validity cannot be upheld under the Su-

premacy Clause.

RELIEF

This kemorandum—Decision explains the

reasoning behiad the September 4, 1980,

Order of this Court, denying defendarts’

motion to dismiss and granting plaiatiffs’

motions for summary judgment declaring

the anti—pass through provision of the New

York gross receipts tax unconstitutional as

in violation of the Supremacy Clause and

enjoining its enforcement. The Court by

this Memorandum-Decision reaffirms its

findings as corntained in the September 4,

1980, Order and hereby incorporates this

Decision therewith.

IT IS SO ORDERED.

A-54

APPENDIX B

639 FEDE"AL REPORTER, 2d SERIES

MOBIL OIL CORP. v. TULLY

Cite as 639 F.24 912 (1981)

MOBIL OIL CORP., Atlantic Richfield

Ce., United Refining Co., Inc., and Gulf

Oil Co., Chevron U.S.A. Inc., Amoco Oi]

Co., Texaco Inc. and Exxon Corp., Plain-

tiffe-Appellees,

James HK. TULLY, Jr., Thomas H, Lynch,

and Francis Koenig, Constituting the

New York State Tax Commission; Reb-

ert Abrams, Attorney General of the

State of New York; and James L. La-

Rocca, Commissioner of the New York

State Energy Office, Defendants-Appel-

lants.

NEW ENGLAND PETROLEUM CORP.,

Plaintiff-Appeliee,

James H. TULLY, Jr.. Commissioner of

Taxation and Finance of the State of

New York, and Robert Abrams, Attor-

ney General, State of New York, De-

fendants-Appeliants.

AMERADA HESS CORP.,

Plaintiff-Appeliee.

James H. TULLY, Jr., Thomas H. Lynch

and Francis Koenig, Constituting the

New York State Tax Commission; Rob-

ert Abrams, Attorney General of the

State of New York, and James L. La-

Rocca, Commissioner of the New York

State Energy Office, Defendants-Appel-

lants.

No. 482, Docket 80-7785.

A-55

United States Court of Appeals,

Second Circuit.

Argued Oct. 30, 1980.

Decided Jan. 28, 1981.

Oil companies brought action seeking

declaretory and injunctive relief with re-

spect to antipass-through provision of New

York statute imposing gross reccipts tax on

oil companies. On plaintiffs’ motion for

summary judgment and defendants’ motion

to dismiss, the United States District Court

for the Northern District of New ‘York,

Neal P. McCurn, J., 499 F.Supp. 888, found

action was not barred and antipass-through

provision was preempted by federal regula-

tions, and-New York State Tax Commission

and Attorney General appealed. The Court

of Appeals, Mulligan, Circuit Judge, held

that: (1) the antipass-through provision of

New York State’s tax upon gross receipts of

oi] companies doing business within state

was not insulated from scheduled scrutiny

hy the Anti-Injunction Act, and (2) al-

though State had right to place legal inci-

dents of tax upon oil companies, it went

beyond its taxing powers and employed its

police powers in determining that oil com-

panies could not recover their costs from

consumer directly or indirectly.

Appeal dismissed in part and stay of

enforcement continued.

1. War and National Emergency ¢133

The Temporary Emergency Court of

Appeals had jurisdiction over question of

whether impermissible conflict existed be-

tween antipass-through provision of New

York State’s tax upon gross receipts of oil

A-56

companies doing business within the state

ard federal statute, regulations and con-

gressional policy. N.Y.Tax Law § 182;

Emergency Petroleum Allocation Act of

1978, § 2 et seq., 15 U.S.C.A. § 751 et seq.

not insulated from federal scrutiny by the

Anti-Injunction Act. N.Y.Tax Law § 182;

23 U.S.C.A. § 1341.

3. Federal Courts = 11%

Court of Appeals has concurrent juris-

diction in an appeal from a final order of a

district court over independent issues which

do not present an Emergency Petroleum

Allocation Act question. Emergency Petro-

leum Allocation Act of 1978, § 2 et seq., 15

U.S.C.A. § 751 et seq.

4. Taxation ¢= 1262 4

Although state has right to place legal

incidents of tax upon oil companies, it went

beyond its taxing powers and employed its

police powers in determining that oi] com-

panies could not recover their costs from a

consumer directly or indirectly. 28 U.S.

C.A. § 1841; N.Y.Tax Law §'182

Thomas R. Trowbridge, III, New York

City (Donovan, Leisure, Newton & Irvine,

New York City, John M. Freyer, Bond,

Schoeneck & King, Syracuse, N. Y., of coun-

sel), for plaintiffs-appellees Mobil Oil Corp.,

Atlantic Richfield and United Refining Co.

Edward F. Gerber, Syracuse, N. Y. and

Arthur C. Vangeli and Sydney M. Avent,

Philadelphia, Pa., of counsel, for Gulf Oil

A-57

George Weisz, New York City (Cleary,

Gottlieb, Steen & Hamilton, New York

City, James C. Blair, New York City, War-

ner Bouck, Bouck, Holloway & Kiernan,

Albany, N. Y., of counsel), for plaintiff-ap-

pellee New England Petroleuia.

Stanley D. Robinson, New York City

(Kaye, Scholer, Fierman, Hays & Handler,

New York City, William L. Allen, Jr., Han-

cock, Estabrook, Ryan, Shove & Hust, Syra-

cuse, N. Y., of counsel), for plaintiff-appel-

lee Amerada Hess Corp.

Edward Costikyan, and Sinion H. Rif-

kind, New York City (Paul, Weiss, Rifkind,

Wharton & Garrison, New York City, of

counsel), for defendants-appeiiants Tully,

Lynch and Koenig.

Shirley Adelson Siegel, Sol. Gen., State of

New York, Albany, N. Y., of counsel, for

Robert Abrams and defendant-appellant

LaRocca.

Before MULLIGAN and VAN GRAAF-

EILAND, Circuit Judges, and WERKER,

District Judge.°

MULLIGAN, Circuit Judge:

On June 18, 1980, New York Governor

Hugh Carey signed into law two bills, Sen-

ate Bills 19188 and 10261, which created a

new Section 182 of the New York Tax Law

and established a 2% tax on the “gross

receipts” of oi] companies doing business in

New York. 1960 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

* United States District Judge for the Southern

District of New York, sitting by designation.

G9 F 26—20

A-58

estimated by the New York State Division

of the Budget that the new tax would raise

an additional 235 million dollars 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 reve-

nue. N.Y. Act, ch. 272 § 1. In order to

ensure that the oi] companies, and not the

consuming public, bore the burden of the

tax, the ‘legislature provided in Section

4(12a) 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 liability of the oil

company, shall be paid by such company

and shall not be ‘ncluded, directly or indi-

rectly, in the sales price of its products

sold in this state.

N.Y.Tax Law § 182(12Xa) (McKinney Supp.

1980). Companies which are found to have

passed on the cost of the tax through prod-

uct 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(12XbX(2). In addition, the legislature

hinged the viability of the tax itself upon

the validity of the anti-passthrough provi-

sion. In 1980 N.Y. Laws, ch. 272, § 5 (the

self-destruct provision), the legislature pro-

vided that:

[i}f the provisions of [the anti-pass-

through section) is [sic}: (i) adjudged by

any court of competent jurisdiction to be

invalid and after exhaustion of all fur-

ther judicial review; or (ii) held in a

formal opinion or ruling issued by the

federal Economic Regulatory Administra-

tion or any other federal agency of com-

petent jurisdiction to be violative of the

provisions of the federal

Price Allocation Act of 1973, as amended,

A-59

or the federal Mandatory Petroleum

Price Regulations (10 CFR 212) promul-

gated pursuant thereto, or any syccessor

federal law or regulation, and thereby

rendered inoperative, and after exhaus-

tion 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-appel'ces, ten oil companies

concededly subject to the tax, instituted

these actions in the Northern District of

New York against the defendants-appe!-

lants, New York State Tax Commission,

New York State Attorney Generai and the

Commissioner of the New York State Ener-

gy Office, seeking declaratory and injunc-

tive relief. The oil companies argued that

the anti-passthrough provision was invalid

(a) because it conflicted with the Smergen-

cy Petroleum Allocation Act, 15 U.S.C.

§ 751 et seq. (EPAA) and the Federal Man-

datory Petroleum Price Regulations, 10

C.F.R. §§ 212.1, 21282 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 judgment while the defend-

ants moved to dismiss the actions for lack

of federal jurisdiction under “8 U.S.C.

§ 1341, the Tax Injunction Act. By order

dated September 4, 1980, the District Court

denied the defendar‘s’ motion to dismiss

and granted summary judgment in favor of

the plaintiffs.

In a memorandum and decision dated

September 19, 1980, Judge Neal C. McCurn

held that the anti-passthrough provision

A-60

was in effect a price control and not a rule

of tax incidence. Mobil Oil Corp. v. Tully,

499 F.Supp. 888 at 894 (N.D.N.Y.1980).

The court therefore held that the Tax In-

junction Act, 28 U.S.C. § 1341 was inappli-

cable. Id. In addition, because the “price

control” provision was found to be in con-

flict with the EPAA and the regulations

issued thereunder, Judge McCurn declared

that the provision was preempted by feder

al law with respect to exempt and non-ex-

empt petroleum products. Id. at 907, 910.

Judgment was entered on September- 19,

1980 but on motion by the defendants-ap-

pellants, the District Court stayed enforce-

ment until October 31, 1980. Mobil Oil

Corp. v. Tully, 499 F.Supp. 888 (N.D.N.Y.

1980). The stay was continued by this

court in a ruling 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 plaintiffs-appel-

lees’ motion for summary judgment. The

appellees 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 Emer-

gency Court of Appeals (TECA) by virtuc

of Section 5 -f the EPAA, 15 U.S.C.

§ 754(aX1), which incorporates the review

provisions of Section 211(bX2) of the Eco-

nomic Stabilization Act. 12 U.S.C.A.

§ 1904, note (West Supp.1980). Thus, this

case and-its companion case also decided

today, Mobil Oil Corp. v. Dubno, 689 F.2d

919 (2d Cir. 1981) require an analysis of

the appropriate allocation of appellate juris-

diction between a court of appeals and the

TECA.

A-61

The Motion to Dismiss

(a) Preemption

{!] The threshold issue on this appcal is

whether this court has jurisdiction to hear

it. The appclice oi] companies have argued

that Section 211(bX2) of the ESA, 12 U.S.

C.A. § 1904, note (West Supp.1980), pro-

vides that the Temporary Emergency Court

of Appeals (TECA) has “exclusive jurisdic-

tion of all appeals from the district courts

of the United States in cases and controver-

sies arising under [ESA]” Section 5 of the

EPAA, 15 U.S.C. § 754(aX(1), incorporates

by reference the jurisdictional provisions of

§ 211 of the ESA where there is judicial

review of the regulations promulgated un-

der Section 753(a) of the EPAA (mandatory

allocation of crude oil, residual fuei oi] and

In Coastal States Marketing, Inc. v. New

England Petroleum Corp., 604 ‘F.2d 179 (2d

Cir. 1979) we held that a case or controver-

y arises under the ESA or EPAA where

the district court has adjudicated an “ESA

issue.” (The court used that expression to

mean issues involving the ESA ard the

EPAA as well as regulations promulgated

under both statutes. Id. at 182 n3). The

Tenth Circuit has indicated that an ESA

issue is one “involving the construction, ap-

plicability and effect” of the EPAA, Moun-

tain Fuel Supply Co. v. Johnson, 586 F.2d

1875, 1882 (10th Cir. 1978), cert. denied, 441

U.S. 952, 99 S.Ct. 2182, 60 LEd2d 1058

(1979).

The preemption issue presented here does

present an EPAA question which was adju-

dicated in the District Court and is thus

within TECA’s exclusive appellate jurisdic-

A-62

tion. A major contention of the oil compa-

nies 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

determination that the state law conflicted

with the .federal regulations, as Judge

McCurn found, necessitates “a careful ex-

amination of the Federal EPAA and the

Mandatory Price Regulations promulgated

thereunder.” Mobil Oil Corp. v. Tully, su-

pra, at 892. 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

sional scheme and policy. Id. at 898-910.

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 per-

suasive. In Swift & Co. v. Wickham, 362

U.S. 111, 86 S.Ct. 258, 15 L.Ed.2d 194 (1965),

the_Supreme Court held that the issue of

preemption did not involve a substantial

constitutional question so as to warrant the

convening oi & tnree judge court pursuant

to 28 U.S.C. § 2282 The Court declared

that the basic question involved. in a pre-

emption case “is, never one of interpretation

of the Federal Constitution but inevitably

one of comparing two statutes.” Id, at 120,

86 S.Ct. at’ 268. See also. American Federa-

tion of Labor v. Watson, 327 U.S. 582, 66

A-63

S.Ct. 761, 90 L.Ed. 878 (1946).

This court has made a similar analysis in

Andrews v. Maher, 525 F.2d 118, 119 (2d

Cir. 1976).

While [the Supremacy Clause] is the

reason why a state law that conflicts with

a federal statute is invalid, it is the feder-

al 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 stat-

utory schemes involved here, both state and

federal. Having found that an impermissi-

ble conflict existed between the anti-pass-

through provision and the federal statute,

regulations ‘and congressional policy, the

finding of preemption was automatic. Ap-

pellants further argue that if arguendo the

District Court did have exclusive jurisdic-

tion in all suits arising under the EPAA,

then jit 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 sub-

stantial constitutional question exists and if

30 “certify such i to [TECA}” While

our analysis Id indicate that the sub-

stantial issue was statutory and regulatory

analysis and interpretation rather than con-

stitutional, the short answer to the conten-

tion ts that the cortificaticn issue is a deter-

mination to be made by TECA and not this

court. Citronelle-Mobile Gathering, Inc. v.

Gulf Oil Corp., 591 F.2d 711, 716 ),

cert. denied, 444 U.S. 879, 100 S.Ct. 168, 62

L.Ed.2d 109 (1979).

Appellants’ further argument that an

EPAA question is one limited to cases and

controversies involving a regulation pro-

mulgated under Section 753(a) and not to

alf cases or controversies arising under the

(b). The Anti-Injunction Act

[2] The oil company appellees’ motion to

dismiss the appeals on _ jurisdictional

A-65

this but denominate it as an issue ancillary

to the EPAA preemption question and

thercfore within TECA's exclusive jurisdic-

tion.

In a comparable setting TECA has de-

clined to take jurisdiction. In Texaco, Inc.

v. Department of Energy, 616 F.2d 1198

(Fm.App. 1979) TECA declined to accept

jurisdiction to review a District Court hold-

ing that the Federal Energy Regulatory

Commission had review authority under the

Department of Energy Organization Act

eveu 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 in-

volved the interpretation of a statute not

within the review 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.” Id. at

1196.

Here the federal statutory prohibition is

plainly not within the EPAA and the refus-

al of TECA to exercise such jurisdiction is

reasonably to be anticipated. Obviously,

the TECA posit'cn can result in bifurcated

appeals as it will in this case but that has

been anticipated by this court in Coastal

States Marketing v. New England Petrolo-

um Corp., supra, 604 F.2d at 185. It is

desirable to defer to a specialized federal

appellate court, TECA, with its special ex-

pertise on EPAA issues, which in this ap-

peal, includes the preemption question in-

present an EPAA question. Id. at 186.

The Section 1841 question is substantial and

Sons Oil Corp. v. B.:P. Oil Corp., 581 F.2d

math abn Bryon asc That case

ve an appeal from an BPAA ques-

ae was within the exclusive juris-

diction of TECA as well as an ancillary

issue—an appeal from an interlocutory or-

der of the District Court refusing to trans-

fer the action to another District Court.

Our dismissal was based on the proposition

that a ruling on a transfer motion is rot

independently appealable under 28 U.S.C.

§$°1292(aX1). In,thia case the Section 1341

issue is independent and severable from the

EPAA question and presents us with an

appealable order from a final order of the

District Court.

We conclude therefore that the motion to

dismiss the appeal on jurisdictional grounds

is ‘granted with respect to the preemption

question and denied as to the Section 1341

issue.

A-67

(4) Having determined that the preemp-

tion 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, sus-

pend or restrain the assessment, levy or

collection of any tax under State law

ment, levy or collection” of a New York

State Tax and is‘thus within the clear pro-

scription of Section 1341. The oil compa-

nies argue that they do not at all challenge

the validity of the tax but: simply the anti-

passthrough provisions which they denomi-

nate as an exercise not of the taxing power

of the State but rather its police power.

The anti-passthrough proyision, they urge,

is a price fixing statute and not a taxing

device. While’ the statutory linkage be-

tween the validity of this provision and the

continued existence of the tax does result in

the frustration of the State’s power to col-

lect 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(12Xa) 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 National Bank v. Tax

Commission, 392 U.S. 339, 347-48, 88 S.Ct.

A-68

2173, 2177-78, 20 L.Ed.2d 1138 (1968) where

the Court held invalid a Massachusetts stat-

ute which imposed a sales tax upon a na-

tional bank. In the course of its opinion the

Court construed the state statute as impos-

ing 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 impoge the tax on the vendor. In revers-

ing, the court stated “[t}here can be no

doubt from the clear wording of the statute

that the Massachusetts Legislature intend-

ed that this sales tax be passed on to the

purchaser, For our purposes, at least, that

intent is controlling.” Id. at 348, 88 S.Ct. at

2178. It is difficult to understand how the

State can reasonably 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 I st a state

court. No one questions the right of the

State of New York to place the legal inci-

dence of the tax upon the oil companies—

but it is an entirely different mattcr for the

legislature to instruct the person t»xed 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 legislation 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) con-

sumers” and “to prevent such grocs recaipts

tax from fueling inflation by prohibiting

the passthrough of such tax to the consum-

ers of this state.” N.Y. Act, ch. 272, § 1.

This objective is certainly not an exercise

of a taxing power but a police power affect-

A-69

ing’ the price structure of petroleum prod-

ucts. We agree that the State has the right

to place the legal incidence of th. tax upon

the oil companies; it has selected its target.

But in barring the targets of the tax from

recovering their costs fram the -onsumer

directly or indirectly, the State has gone

beyond its taxing powers and has employed

its police powers. Whether this is appropri-

ate is not the issue before us; whether it

results in a collision with EPAA is for

TECA. We simply hold that that action is

not insulated from federal scrutiny by Sec-

tion 1341.

The mere fact that the anti-passthrough

section is contained in 4 tax law of the

State should not lead to automatic sanctu-

ary 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 im-

mediate hardship and harm to him in viola-

tion of his equal protection rights under the

fourteenth amendment. 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., Commissioner of

Taxation and Finance of the State of New

York in his affidavit in support of a stay

which states in part that the plaintiffs “do

A-70

not challenge the imposition of the tax, or

the rate of the tax, or the allocation formu-

la 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- :assthrough 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 con-

cerns about inflation and rising fuel costs.

A constitutional attack under the Suprema-

cy 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 had in the courts

of this State.

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.

A-71

APPENDIX C

Statutes Involved

28 USC § 1341 (the Tax Injunction Act) provides:

“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.”

Subdivision | of New York Tax Law, § 182, provides:

“1. Notwithstanding any other provision of this

chapter, or of any other law, an annual tax is hereby

imposed upon every oil company equal to two per

centum of its gross receipts from all sources, or the

portion thereof allocated within the state as hereinafter

provided, for the privilege of exercising its corporate

franchise, or of doing business, or of employing

capital, or of owning or leasing property in this state in

a corporate or organized capacity, or of maintaining

an office in this state, for all or any part of each of its

taxable years. In no event shall the tax imposed by this

section be less than two hundred fifty dollars.”

Subdivision 12(a) of New York Tax Law, § 182, provides (in

pertinent part):

“12. (a) The tax imposed by this section and any

penalty which may be assessed under this subdivision

shall be a liability 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.0="

Section 12(a) of chapter 272 of the New York Laws of 1980,

provides:

“§ 12. (a) If the provisions of paragraph (a) of

subdivision twelve of section one hundred eighty-two

of the tax law, as added by section four of this act,

prohibiting the inclusion of the tax imposed by this act,

directly or indirectly, in the sales price of its products

sold in this state by the oil company upon which such

tax has been imposed is: (i) adjudged by any court of

competent jurisdiction to be invalid and after

exhaustion of all further judicial review; or (ii) held ina

formal opinion or ruling issued by the federal

Economic Regulatory Administration or any other

A-72

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 cease to be in force and effect on

the date provided for in subdivision (d) of this section.”

Section 12(d) of chapter 272 of the New York Laws of 1980,

provides (in pertinent part):

“(d) In the event that the provisions of this act

shall cease to be in force and effect pursuant to the

provisions of *** subdivision (a) *** of this section, the

effective date of such cessaton shall be the tenth day

after the effective date of *** the order or judgment, or

formal opinion or ruling holding said paragraph (a) of

subdivision twelve of section one hundred eighty-two

of the tax law invalid, *** provided, however, that

such tax shall continue in full force and effect until

such day and all filing of returns and payment of taxes,

interest and penalties otherwise required by this act for

all periods prior to the cessation of such act shall be

timely made and may be enforced as fully and to the

same extent as if such act had continued in effect.”

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.