Petition — Francis Oil & Gas, Inc. v. Exxon Corp.

IN THE

Supreme Court of the Ani trd

October Term, 1982

ALEXANDER C STEVAS,

CLERK

FRANCIS OIL & GAS, INC., CURTIS S. GREEN, DAVE R.

SYLVAN, GEORGE D. DALY, GEORGE B. KAISER and

DON H. NELSON, individually and on behalf of all other

persons similarily situated, collectively and as a class,

Petitioners,

V.

EXXON CORPORATION and MARATHON OIL

COMPANY, individually and on behalf of all other persons

similarily situated, collectively and as a class,

Respondents.

PETITION FOR A WRIT OF CERTIORARI

TO THE

TEMPORARY EMERGENCY

COURT OF APPEALS OF THE UNITED STATES

Frederic Dorwart*

J. Michael Medina

Suite 700

10 E. 3rd St.

Tulsa, Oklahoma 74103

(918) 584-1471

Counsel for Petitioners

CF COUNSEL:

HOLLIMAN, LANGHOLZ, RUNNELS & DORWART

Suite 700, 10 E. 3rd Street

Tulsa, Oklahoma 74103

September 15, 1982

*Counsel of Record

—— —ZÄ—2—2—2—— —

DICESARE - Printing — 3314101 — Washington, D.C. 20006

QUESTIONS PRESENTED

1) Whether the Temporary Emergency Court of Appeals

(“TECA”) has jurisdiction to review a declaratory judgment of a

district court which, applying state law, interprets the private

rights of parties under a contract where the federal energy

regulations expressly provide that the issue is one of private

contract governed by state law?

2) Whether TECA has correctly construed, in disregard of the

District Court's explicit finding that state law would require the

contrary result, federal regulations (stated by the specialized

administrative agency to be neutral as regards the distribution of

imputed stripper oil) to require an affirmative contractual

provision in order for preunitized stripper well property owners

to receive a greater than pro rata share of the Unit's imputed

stripper well production?!

‘Although no longer a stated consideration under Rule 17 for granting

certiorari, IEC AS complete disregard of the District Court's expert

construction of state law is one indication of TECA's unjudicial treatment of the

litigation. Another indication is TECA's misreading of the District Court's

judgment. TECA relied on the fiction that the petitioners admitted the Unit

production formula controlled the allocation of lower and upper tier oil (App.

A-14). This is untrue. Petitioners never admitted the correctness of the

allocation of upper and lower tier oil. Petitioners were, rather, unable to contest

the allocation; they did not have the necessary information (historical BPCL

and production histories of all the tracts which form the Unit) that would have

been required to attempt an allocation of prices different from that actually

employed by named petitioners. Only Marathon, the unit operator, had the

information necessary to allocate prices for lower tier and upper tier oil. The

existence of imputer stripper oil, on the other hand, is solely a function of the

individual properties which were aggregated to form the Unit. Hence, the

named petitioners were able to determine, without reference to the rest of the

Unit, the amount of imputed stripper oil attributable to their Tract 117.

Furthermore, as petitioners established in the court below, the allocation of

lower and upper tier oil involves numerous special considerations not

applicable to the present stripper oil controversy.

PARTIES

The parties to the proceedings in this action are the working

interest and royalty interest owners in the Yates Field Unit,

located in Pecos and Crockett counties, Texas. Francis Oil &

Gas, Inc., Curtis S. Green, Dave R. Sylvan. George D. Daly,

George B. Kaiser and Don H. Nelson were designated

representatives of the plaintiff class, defined by the District Court

below (and as requested by the respondents) to be:

“All persons who own an interest in the Yates Field

Unit who would derive an economic benefit in their

capacity as Unit participants from the allocation of

Unit production to their respective tracts on the basis

advocated or utilized by the interest owners in Tract

117.”

Exxon Corporation and Marathon Oil Company were

designated representatives of the defendant class, defined by the

District Court below (and as requested by the respondents) to be:

“All persons who own an interest in the Yates Field

Unit who would not derive an economic benefit in their

capacity as Unit participants from the allocation of

Unit production to their respective tracts on the basis

advocated or utilized by the interest owners in Tract

117.”

The unnamed members of the classes known to the named parties

were identified in papers filed pursuant to Rule 21(c) of the Rules

of the Temporary Emergency Court of Appeals. The petitioners

stand ready to provide such documentation to the Court should

the Court deem it advisable.

TABLE OF CONTENTS

e ii

eee dee i

„ Alackivncbhcccetedecccvrcesetuccescccecdé 2

Statutory and Regulatory Provisions .................. 2

——..,.,.., csieciwc dakheks «ona hosven 2

A, TE GE GD DD ...e ee ee dees 3

Ele 5

Reasons for Granting the Wit 9

A. Conflict with Decisions of

See COGS OE AIEEE e cdimaceses 9

B. Important Question of Federal Law .............. 14

„. soceaqnnmints HOP eccced 18

e cccapcensteebaeed de coccbee 19

TABLE OF AUTHORITIES

A. Cases

Atlantic Richfield Co. v. Department of

Energy, 655 F.2d 227 (TECA 18611) 10, 11

Bray v. United States, 423 U.S. 73 (1975) ........... 13, 14

Coastal States Marketing, Inc. v. New England

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

e ² lee. 10. 14

Francis Oil & Gas, Inc. v. Exxon Corp.,

n ee 8

Gulf Oil Corp. v. Department of Energy,

eee eee 10

Spinetti v. Atlantic Richfield Co., 522 F.

Se SUG MES PUTED. cca eee eee 10

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

r BURP kh En ccabhse cansedvcereskes 9, 10

United States v. Cooper, 482 F.2d

MEE Gh chk ve poets Cuber sc ecccccveubess 10

United States v. Uni Oil Co., 646 F.2d

POE GE CUED eee 10, 13, 14

United States v. Zang, 653 F.2d 493

(TECA 1981), cert. denied 102 S.Ct. 333. 10

B. Statutes

12 U.S.C. App. 1904, §211(b)(2) .. 2... cece ence ween 2, 10

12 U.S.C. App. 1904, §211(g) ... 6... cece cece een enees 2

ee esse 2. 10

n „„ 5

egen, 0 2

Dre. eee eee ee 14

C. Rul-s and Regulations

Executive Order 12287, 46 Fed. Reg.

9909 (January 30, 1981777 2

Rule 17, Supreme Court Rules 9. 14

IO CPR. GEIR S4 Crepenbed sons c cheb Sb cocks ccecccccs 5

10 C.F.R. §211.63(a)(repealed) ............... 6 7

10 C. F. R. 5212.7 KbMrepealedd 2. 7. 16

41 Fed. Reg. 4931 (February 3, 196 /c ) 3, 11, 16

43 Fed. Reg. 33694 (August !, 1976 )))::: 16

46 Fed. Reg. 20508 (April 3, 198 1/⸗õ⸗ꝛ1 0. ccc eeees 2

D. Treaties and Other References

3B Moore's Federal Practice, IJ 23. 40 ............ 3

6 Moore's Federal Practice, 4 56.13 ........00cecceees 4

10 Wright & Miller, Federal Practice and

. r 4

Goldman (ed)., The Words of Justice Brandeis,

ien dc ccediobénus 18

IN THE

Supreme Court of the Mnited States

October Term, 1982

FRANCIS OIL & GAS, INC., CURTIS S. GREEN, DAVE R.

SYLVAN, GEORGE D. DALY, GEORGE B. KAISER and

DON H. NELSON, individually and on behalf of all other

persons similarily situated, collectively and as a class,

Petitioners,

V.

EXXON COKPORATION and MARATHON OIL

COMPANY, individually and on behalf of all other persons

similarily situated, collectively and as a class,

Respondents.

PETITION FOR A WRIT OF CERTIORARI

TO THE

TEMPORARY EMERGENCY

COURT OF APPEALS OF THE UNITED STATES

Petitioners pray that a writ of certiorari issue to review

the judgment of the Temporary Emergency Court of

Appeals of the United States entered on August 16, 1982 in

this case.

OPINIONS BELOW

The opinion of the Temporary Emergency Court of

Appeals will be reported at F.2d — (TECA 1982),

and is reproduced as Appendix A-| to A-15. The Judgment

of the Temporary Emergency Court of Appeals is

reproduced as Appendix B, at p. A-16. The Amended

Summary Judgment entered by the District Court is not

mpeg a offically reported ands reproduced x Append Cp. A-

to A-

K

JURISDICTION

The judgment of the Temporary Emergency Court of

Appeals was entered on August 16, 1982. No petition for

rehearing has been filed. The jurisdiction of this Court is

invoked pursuant to 12 U.S.C. App. 1904, §211(g) and 15

U.S.C. §754(a) (1).

STATUTORY AND REGULATORY PROVISIONS

12 U.S.C. App. 1904, §211(b) (2): -

“Except as otherwise provided in this section,

the Temporary Emergency Court of Appeals shall

have exclusive jurisdiction of all appeals from the

district courts of the United States in cases and

controversies arising under this title or under

regulations or orders issued thereunder. Such

appeals shall be taken by the filing of notice of

appeal with the Temporary Emergency Court of

Appeals within thirty days of the entry of a

judgment by the district court.

10 C. F. R. §212.75(b)(2) (repealed, 46 Fed. Reg. 20508

[April 3, 1981) states, in pertinent part?

“imputed stripper well crude oil means, (1) with

respect to a unitized property for which a unit base

production control level was established prior to

August |, 1977, in a particular month, a number

of barrels of crude oil equal to the total number of

barrels of crude oil (excluding condensate

recovered in non-associated production)

produced during the 1!2-month period

immediately preceding the establishment of a unit

base production control level for the unitized

Most of the crude oil regulations were revoked by President Reagan's

decontrol of crude oil and refined petroleum products on January 30, 1981.

Executive Order 12287, 46 Fed. Reg. 9909. The Wepartment of Energy then

formally repealed the regulations on April J. 1981. 46 Fed. Reg 20508. The

stripper well categorization retains continuing national significance due to the

favored tax treatment of stripper well oil in relation to most other oil

under the Crude Oil Windfall Profits Tax of 1980, 26 U.S.C. §4987, 4991.

property from all stripper well properties

(qualified as such as of the establishment of a unit

base production control level for the unitized

property) that constitute the unitized property,

divided by the number of days in that 12-month

period, and multiplied by the number of days in

that particular month.”

41 Fed. Reg. 4931, 4937 (February 3, 1976):

“Although some comments suggested that FEA

prescribe the method for allocating this quantity

of upper tier crude oil among the participating

leases, FEA has determined that this allocation is

more properly a matter for private resolution

among participants of the unit agreement.”

STATEMENT

A. STATEMENT OF THE CASE

This current action was originally filed in Texas state

court as a bilateral class action.“ The named respondents

removed the action to the United States Distict Court for

the Western District of Texas on the basis of diversity of

citizenship and federal question jurisdiction, whereupon

the District Court certified this action as a bilateral class

action.“

On February 19, 1981, the named petitioners filed their

Motion for Summary Judgment. Extensive discovery was

conducted and completed. Exxon and Marathon filed a

cross motion for summary judgment on or around

‘Professor Moore has coined the phrase bilateral class action” to define a

class action with both plaintiff and defendant classes. 3B Moore's Federal

Practice, | 23.40{6) at p. 23-311.

September 24, 1981. After receiving extensive briefs on the

issues presented to this Court, and after hearing oral

argument on the parties’ motions for summary judgment,

the District Court granted the named petitioners’ Motion

for Summary Judgment.5 —

The District Court squarely based its decision on state

contract law. The District Court held that the Unit

Agreements allocate only production, and not the prices or

proceeds of sale“ The District Court also held that, as a

matter of state contract law, the stripper well pricing

benefits after unitization belong to the individual tracts

giving rise to the benefits and are not allocated to other

tracts unless there is a specific contract provision allocating

the pricing benefits in some other manner. Simply stated,

the District Court held that the pricing attributes of crude

oil are not “unitized substances” within the meaning of the

Unit Agreements. Because, under Texas state law, the Unit

Agreements allocate only production, and not the prices or

proceeds “f sales, the District Court held that the intent of

the parties under the Unit Agreements was to leave the

benefit of stripper well pricing with the plaintiff class, your

petitioners.

SBy requesting summary judgment, the petitioners did concede that no issue of

fact existed under the theory that the petitioners were advancing On the other

hand, the petitioners did not concede that no issues remain in the event that the

respondents’ theory would be adopted. 6 Moore's Federal Practice. J $6.13 at

56-341 to 56-345, 10 Wright & Miller, Federal Practice and Procedure, §2720 at

pp. 459-467. The respondents’ theory relied heavily on unsupported assertions

of purported and nebulous industry practice and understanding The

unsupported allegations of industry practice and understanding were demed by

the petitioners in deposition testimony. TECA was therefore patently incorrect

in directing that summary judgment be entered in favor of the respondents.

Basic issues concerning the construction of the Yates Field unit agreements

remained after TECA's disposition.

*The amended summary judgment on February 4, 1982 made clear that the

summary judgment was entered on behalf of the plaintiff class, and not simply

on behalf of the named plaintiffs. The amended order also corrected a

typographical error

The respondents then perfected dual appeals to the

Temporary Emergency Court of Appeals (“TECA”) and to

the United States Court of Appeals for the Fifth Circuit.’

On appeal, TECA reversed the District Court's award of

summary judgment to petitioners and directed that

summary judgment be entered in favor of the respondents.

Over petitioners’ objections, TECA upheld its jurisdiction

to review the District Court's judgment and held that the act

of unitization deprived the prior tract owners of any right to

certify their tract’s pre-unitized level of stripper oil unless a

specific provision in the unitization document so gave them

the right. TECA then stated that the under Texas law, no

clause in the Yates Field Unit agreements preserved the

petitioners’ rights to so certify the imputed stripper oil.

B. STATEMENT OF THE FACTS

The Yates Field Unit is located in Pecos and Crockett

Counties, Texas. The named petitioners are the owners of

oil and gas produced from the oil and gas leases located

within Tract 117 of the Yates Field Unit. Prior to

unitizaticn of the Yates Field, the named petitioners had

sold their oil, through the tract operator K aiser-Francis Oil

Company, to Exxon. Forty barrels of daily oil production

from Tract 117 qualified for stripper status at the time of

unitization.*

he Fifth Circuit has stayed further proceedings in Appeal No. 82-1088

pending resolution of the TECA appeal.

Stripper crude oil, at all times relevant to this controversy, was generally

defined as crude oil produced from a property whose average daily production

did not exceed 10 barrels per well during a designated qualifying period. |5

U.S.C. §757 (2). The price of stripper oil was uncontrolled, except for a

period from February to September 1976, where the price of stripper oil was

controlled at the upper tier level. 10 C.F.R. §212.54, repealed 46 Fed. Reg.

20508 (Apri! 3, 1981).

Marathon Oil Company was the primary mover behind

unitization of the Yates Field Marathon, with an eventual

49.480235% interest in the Unit, was the principal drafter of

the Unit Agreements. The Unit Agreements, as drafted by

Marathon and executed by a small group of insiders,

underwent only slight modification when later submitted

for approval by the other unit participants.

Marathon submitted the Unit Agreements for comments

by a letter dated December 10, 1974 to only a favored few

major working interest owners in the Yates Field.

Marathon's December 10, 1974 letter enclosed copies of

the Unit Agreements and invited the addressees to a

meeting to be held on December 16, 1974. Marathon’s

December 10, 1974 letter was not sent to named petitioners.

Marathon knew at the time of the December 10, 1974

mailing that George B. Kaiser, acting as tract operator, had

specifically requested (in a letter dated October 28, 1974 to

Marathon) to be included on Marathon's mailing list for all

future correspondence. Despite Mr. Kaiser's clear request,

Mr. Kaiser was not included on the mailing list and

consequently was not in attendance at the initial working

interest meeting held on December 16, 1974. Nor did Mr.

Kaiser receive a copy of the summary of the December 16,

1974 meeting.

Instead, Mr. Kaiser received a Marathon letter dated

January 16, 1975 which presented a fait accompli to the

named petitioners. The January 16 letter stated:

“A method for establishing tract participation has

been developed which has proved to be acceptable

to a vast majority of the operators. We believe

these agreements in their present form are

acceptable to an overwhelming number of

operators and that we will soon be able to put

them in form for execution.”

The withheld summary of the December 16, 1974 meeting

confirmed the fait accompli of the determination of the

participation factor assigned the named petitioners. The

economic realities of the Yates Field left the named

petitioners with no choice but to ratify the Yates Field Unit

Agreements.

The Yates Field Unit became fully operational on July 1,

1976 when Marathon, the unit operator, established the

Unit’s Base Production Control Level (“BPCL”).

Commencing with the month of July, 1976 and ending with

the month of September, 1980, the named petitioners have

sold Exxon all the oil allocated to Tract 117.° The named

petitioners, pursuant to regulation, certified to Exxon cach

month the amount of old oil, new oil and stripper oil which

the named petitioners were selling.“ In accordance with the

Yates Field Unit Agreements, the name petitioners certified

the Tract 117 oil qualified for stripper well pricing benefits.

Exxon totally ignored the named petitioners’

certifications. Exxon's payments were determined from

calculations based on certain information provided by

Marathon, the unit operator. This information included the

*The named petitioners did not continue selling their oil to Exxon after the

stripper well pricing controversy started by choice. The named petitioners were

effectively required to sell t heir oil to Exxon by federal regulation. See former 10

C. FR. §211.6Ma). When that regulation was amended in September 1980 to

exclude purchases by “majors” from coverage, the named petitioners promptly

discontinued selling their oil to Exxon and found a new purchaser willing to pay

the narned petitioners pursuant to the named petitioners’ lawful certifications.

In general, the quantity of oil produced during the twelve month period

preceding the establishment of the unit constituted the unit's BPCL. Generally,

all production at or below a unit's BPCL was deemed “old” oil, while quantities

in excess of the unit BPCL qualified as new oil. New oil qualified for a higher

price than old oil. 10 C. F. R. §212.75(b), 41 Fed. Reg. at 4941. The

further provided a special rule for units established before August |, 1977

permitting continued qualification for stripper well production derived from

tracts in the unit during the year preceding unitization. The sum of all such

production was defined as the unit's “imputed stripper well crude oil.” 10C_F.R.

$212. 75(b).

Unit's monthly production, BPCL, and total unit amounts

of stripper oil, upper tier oil and lower tier oil. Exxon used

the tract participation formula set forth in the Unit

Agreement which specified participation based on the

producer’s tract size relative to the size of the whole unit.

Exxon allocated the benefits of stripper well pricing among

all unit pa- vipants in the same percentages as was

otherwise provided by the tract participation formula for

the allocation of crude oil production. The result of the use

of the tract area formula was that the amount of stripper

well oil allocated to the named petitioners was considerably

smaller than the actual amount of stripper oil certified by

the named petitioners to the defendant Exxon. Marathon

explicitly denied making any certifications to Exxon as to

Tract 117 oil.

The crude oil allocated by the Unit Agreement to Tract

117 was received in kind and separately and independently

marketed by the named petitioners.

When this controversy first arose’! Exxon sought an

opinion of the Department of Energy that Marathon was

"The controversy between the named petitioners and Exxon resulted in two

other federal court actions and one state court action. In the first federal action,

Francis Oil & Gas, Inc. (“Francis”) sued Exxon for the difference in amounts

paid by Exxon to Francis and the amount certified by Francis. Francis Oil A

Gas, Inc. v. Exxon Corporation, No. 77-C-161-D, Northern District of

Oklahoma. Before a ruling on the merits of the Francis action could be

obtained, Exxon filed a Motion for Judgment on the Pleadings for Failure to

Join Indispensable Parties. Exxon contended that the suit by Francis against

Exxon for breach of contract really involved a construction of the provisions of

the Yates Field Unit Agreement and the Yates Field Unit Operating Agreement

and that, therefore, all the working interest owners ip the Yates Field Unit were

indispensable parties. Working interest owners representing |. 352535 percent

of the total working interest ownership were Oklahoma citizens. Exxon claimed

that diversity jurisdiction would not lie and that the cause would have to be

dismissed. The District Court, in a written order, agreed with Exxon. The

District Court was reversed by the United States Court of Appals for the Tenth

Circuit Francis Oil & Gas, Inc. v. Exxon Corporation, 661 F. 2 873 (10th Cir.

the proper party to certify production from Tract 117. The

Department of Energy rejected Exxon’s request and opined

that the named petitioners were the proper certifying

parties. Furthermore, the Department of Energy expressly

opined that the issue whether the named petitioners or the

other unit participants were entitled to the stripper well

pricing benefits was a question of the private contractual

agreements of the parties to be decided by state law.

REASON FOR GRANTING THE WRIT

A. Conflict with decisions of other Courts of Appeal: This

Court should grant certiorari because the TECA decision

expanding its jurisdictional grant is in conflict with

decisions from the Second Circuit and Fifth Circuit, as well

as in conflict with prior TECA decisions. Supreme Court

Rule 17(a). Prior to the TECA decision, the courts of appeal

had been agreed on the parameters of TECA jurisdiction:

“for purposes of determining TECA jurisdiction,

what is determinative is not whether an EPAA

question exists but whether an EPAA question

has been adjudicated.” Texaco Inc. v. Department

of Energy, 616 F.2d 1193, 1198 (TECA 1979).

1981). The case is now pending before the District Court for the Northern

District of Oklahoma on Francis Motion for Summary Judgment.

The second federal suit was filed by the named petitioners ot her than Francis

Oil & Gas, Inc. against Exxon under the same breach of contract theory. Curtis

& Green et. al. v. Exxon Corporation, No. 79-C-444-E, Northern District of

Oklahoma. The Green case had been abated by the District Court, pending

resolution of the Francis appeal by the Tenth Circuit. The Francis appeal

he ving been resolved, the Green case is now pending on a Motion for Summary

Judgment against Exxon Corporation.

A state court action was brought in Texas against Exxon by the named

petitioners, as a consequence of the Francis dismissal. Francis Oil & Gas, Inc. et

al v. Exxon Corporation, No, 4141, 83rd Judicial District, State of Texas.

Exxon filed a Motion to Abate pending the resolution of the action nc w before

this Court. There has been no other action taken in the Texas state action.

»

10

“What is determinative . . . is not the existence of

an ESA issue, but whether the ESA issue has been

adjudicated.” Coastal States Marketing, Inc. v.

New England Petroleum Corp., 604 F.2d 179, 187

(2d Cir. 1979); see also, United States v. Uni Oil,

Inc., 646 F.2d 946 (Sth Cir. 1981).

In the past, in determining jurisdiction, TECA looked “only

to the nature of the issue on appeal and not to the nature of

the underlying case or controversy.” Gulf Oil Corp. v.

Department of Energy, 639 F.2d 766, 767(TECA 1981).

In other words, TECA’s jurisdiction was one of “issue

jurisdiction"—-TECA would only decide federal energy

issues on appeal, and would leave the non-federal issues to

the regular courts of appeal for adjudication. The second

and fifth circuits explicitly adopted TECA’s approach.

Coastal States Marketing, Inc. v. New England Petroleum

Corp., 604 F.2d 179 (2nd Cir. 1979); United States v. Uni

Oil, Inc., 646 F.2d 946 (Sth Cir. 1981). Inexplicably, TECA

choose to repudiate its past precedents!? in this case and

decide issues specifically adjudicated by the District Court

under state law.

As hereafter discussed, the issue decided by the District

Court was an issue explicitly left by the federal regulations

to be decided by private - that is state - contract law. No

“EPAA” issue was therefore decided; the jurisdictional

prerequisite to the TECA appeal was missing, as TECA’s

jurisdiction is founded exclusively on the provisions of the

Economic Stabilization Act, 12 U.S.C. 51904 note

"See eg. United States v. Zang, 653 F. 2d 493 (TECA 1981), cert. denied

U.S. 102 S.Ct. 323 (no jurisdiction over appeals from convictions

of conspiracy, mail fraud and racketerring despite the fact that ci nina! offenses

arose out of violations of Emergency Petroleum Allocation Act regulations),

Spinetti v. Atlantic Richfield Co., $22 F.2d 1401 (TECA 1975) (no jurisdiction

over counts alleging antitrust and fair trade action violations); Ait

Richfield Co. v. Department of Energy, 655 F.2d 227 (TECA 1981) (no

jurisdiction over state law issues); United States v. Cooper, 482 F.2d 1393

(TECA 1973) (no jurisdiction over convictions for fraudulent

misrepresentations); Texaco Inc. v. Department of Energy, 616 F.2d 1193

(TECA 1979) (no jurisdiction over r

Organization Act).

Economic Stabilization Act, §211(b) (2)] and of the

Emergency Petroleum Allocation Act, 15 U.S.C. §754.

Atlantic Richfield Co. v. Department of Energy, 655 F.2d

227, 233 (TECA 1981).

It is clear that the issue decided by the District Court was

not an EPAA issue, but was rather an issue of state law. The

District Court resolved the issue of allocation of stripper

well pricing benefits among participants in a unit

agreement. The federal regulations are clear that the

allocation of stripper well pricing benefits is a matter of

state law:

“Although some comments suggested that FEA

prescribe the method for allocating this quantity

of upper tier crude oil among the participating

leases, FEA has determined that this allocation is

more properly a matter for private resolution

among participants of the unit agreement.” 41

Fed. Reg. 4931, 4937 (February 3, 1976), 5 Energy

Mgmt. Rep. (CCH) 140. 257 at 40,426.

Exxon has already attempted to convert this contract

dispute into a regulatory one by seeking, subsequent to the

commencement of litigation between the parties, an inter-

pretation by the Department of Energy (“DOE”). The DOE

rejected Exxon's attempt. The DOE expressly and

specifically confirmed that this dispute is a matter of Texas

state law:

“Moreover, Exxon’s question relating to the

validity of Francis’ certifications in reference to

the proportion of crude oil claimed by Francis is

a matter that state law must resolve, hased upon

the written and oral agreements and

understandings of the participants in the Yates

Field Unit.” (Department of Energy Response to

Exxon Request for Interpretation, dated March

22, 1978 (emphasis added).

he letter is reproduced as Appendix D to this Petition, pp.

A-27 to A-

12

The District Court carefully noted that “both parties

agree that the FEA intended the allocation of imputed

stripper oil is a matter left to private agreement which is

controlled by state law”. (Amended Summary Judgment,

App. C at A-20). Pursuant to that understanding, the

District Court first examined the Unit Agreements in light

of Texas state law to determine the intent of the parties. The

District Court concluded that “the unit agreement does not

purport to control allocation of proceeds.” (Amended

Summary Judgment, App. C at A-19).'

The District Court then reviewed the federal energy

regulations for the sole purpose of determining whether

those regulations changed the outcome dictated by state

law. As a matter of state law, the District Court had

determined that the Unit Agreements did not allocate

proceeds, that is, the pricing categories of crude oil. An

examination of the federal regulations led the District

Court to the obvious conclusion that the regulations did not

change what state law would otherwise hold: the petitioners

retained the exclusive right to market the crude oil allocated

“That the District Court's analysis was premised on state law is made

manifest in its opinion:

Both parties agree that the FEA intended that the allocation of

imputed stripper oil is a matter left to private agreement which is

controlled by state law. The parties disagree, however, as to

whether it was incumbent on Plaintiffs to specifically reserve their

original stripper rights to themselves or whether it was incumbent

on Defendants to specifically impute Plaintiffs’ stripper pricing

rights to all the other interest owners in the unit. (Amended

Summary Judgment, App. C. at A-20)

The District Court went on to conclude that state law imposed upon the

respondents the burden of specifically imputing stripper pricing rights to all the

other interest owners in the unit. Federal regulations were examined only to the

extent necessary to determine that these regulations did not pre-empt ot herwise

clear and controlling state law. TECA, on the other hand, concluded that the

DOE did not mean what it said and concluded that federal law places the burden

on the petitioners. This was an important, albeit totally erroneous, decision of

federal law and constitutes an independent reason for this Court granting

certiorari. See, infra, at pp. 14 to 18.

13

to their tracts. s The District Court then concluded its

analysis:

“The pricing benefits of stripper oil were nor

unitized and thus were not imputed to the

remainder of the interest owners in the unit.”

(Amended Summary Judgment, App. Cat A-21).

(emphasis added)

The regulatory history is clear that the FEA did not intend

to alter state law in the allocation of these pricing benefits.

That TECA’s decision is in conflict with decisions of

other circuits is best illustrated by the Fifth Circuit decision

in United States v. Uni Oil, Inc., 646 F.2d 946 (Sth Cir.

1981). The Fifth Circuit was considering whether

prosecutions for RICO violations, alleged mail fraud,

commercial bribery and other criminal offenses arising out

of the defendants’ attempts to miscertify old and new oil

were within the exclusive appellate review of TECA. The

Fifth Circuit concluded that the Fifth Circuit, not TECA,

had jurisdiction, analyzing that:

“The crucial question is whether the case involves

issues that must be decided by TECA in order that

‘uniform interpretation of the substantive

provisions of the’ statute may be achieved.” /d.,

646 F.2d at 951.

See also, Bray v. United States, 423 U.S. 73, 74 (1975). It is

clear that uniform interpretation is not desired in this case.

The administrative agency has explicitly made a policy

decision to permit state private contract law to govern the

ECA was therefore incorrect in asserting:

“Lronically, the district court's ruling (based on its interpretation

of the regulations) that only the pre-unitization stripper well

property owners retained the imputed exemption was itself an

allocation to particular participants; a decision the FEA stated was

to be left to private resolution.” App. A at A-14.

ICA mu reading of the District Court's judgment significantly contributed

to TECA's t nwarranted assertion of jurisdiction.

14

allocation of stripper well pricing benefits under a

unitization plan. That policy choice necessarily permits

and indeed demands a non-uniform interpretation. The

federal policy affirmatively demands that the unit

participants, rather than federal law, determine the issue by

private contract.“

TECA's assertion of jurisdiction in this case is therefore

directly in conflict with the Second Circuit's decision of

Coastal States Marketing, Inc., supra, and the Fifth

Circuit's decision of Uni Oil. Inc., supra. TECA’s statement

that “this dispute can be resolved only through an

interpretation of the regulations and that such an inter-

pretation will control the litigation” (App. A at A-7) is so

patently incorrect as to be a departure of jurisdictional

magnitude from its prior precedents. The District Court

carefully heeded the Department of Energy’s advice that the

allocation of stripper oil in a unit is a matter of private

contract, not federal energy law. TECA in essence held that

any case having an “EPAA issue” is within its jurisdiction."”

This Court should grant certiorari in order to resolve this

conflict and to authoritatively delineate TECA’s

jurisdiction.

B. Important question of federal law: This Court should

grant certiorari because TECA has decided an important

question of federal law which has not been settled by this

Court. Supreme Court Rule 17(c). As discussed earlier,

supra at pp. 9 to 14, TECA construed the imputed

stripper oil regulations to require an affirmative contractual

“The Fifth Circuit is the appellate court of expertise insofar as the

interpretation of Texas state law is concerned, having appellate jurisdiction

over Texas federal district court orders and judgments. See 28 U.S.C. §41.

„ TECA's rationale for its jurisdictional assertion is strikingly identical to the

position once espoused by the Tenth Circuit in disclaiming jurisdiction and

subsequently rejected by this Court in Bray v. United States. 423 U.S. 73( 1975).

15

provision in order for the pre-unitized stripper tract owners

to individually avail themselves of the imputed stripper oil

pricing. In so construing the federal regulations, TECA

completely disregarded the Department of Energy's oi

interpretation of its regulation. Specifically, TECA held:

As we have seen, the imputed stripper well

exemption in fact was an attempt by the federal

agency to prevent the total loss of credit for

production from previously marginal properties.

This does lead, however, to the question that

ultimately separates the parties in this case; how

should the unit's imputed stripper well exemption

be allocated among the participants?

It is in this respect that the federal regulations

were intended to be neutral. The preamble to

section 212.75, immediately following the

description of the imputed stripper well

exemption, states:

Although some comments suggested that

FEA prescribe the method for allocating this

quantity of upper tier crude oil among the

participating leases, FEA has determined

that this allocation [is] more properly a

matter for private resolution among

participants of the unit agreement.

41 Fed. Reg. at 4937. What FEA envisioned is

readily apparent: preserving the possibility of a

stripper well exemption would remove any

disincentive to unitization on the part of owners of

stripper well properties; and these owners could

"On the other hand, under Texas state law, the Unit Agreement (and the

intent of the parties to it) required the contrary result. The District Court

reviewed all the evidence and found the position of respondents totally at odds

with the contract and the understanding of the parties. TEC A, in reversing the

District Court, has pre-empted and reversed state law, despite the Department

of Energy's express mandate that federal law be neutral.

use the prospect of an imputed exemption as a

bargaining chip to negotiate favorable terms in

the unit agreement.” App. A at A-13, 14.

TECA’s definition of “neutral” in context of the imputed

stripper oil regulation turns the regulation on its head.“

The regulation was adopted to eliminate a perceived

significant disincentive for stripper well owners to consent

to unitization. Without the special provision, the creation

of a unit would have destroyed the “stripper well property”

quality of individual tracts through aggregation of

production, threatening the loss of higher prices available

as stripper well oil. 41 Fed. Reg. 4931 at 4936-7 (February 3,

1976), 5 Energy Mgmt. Rep. (CCH) 1 40,257 at 40,426. The

regulation was obviously intended to be an inducement to

the stripper tract owners to consent to unitization. TECA’s

opinion makes that consent hazardous absent an express

negotiated provision granting the preunitized stripper tract

owners the stripper well pricing benefits. It would be

perverse to construe the regulation to reward the unit which

— .

misunderstanding of the relevant regulations. In footnote 7 of its opimon,

TECA notes that the named petitioners only sought to certify 40 barrels of

imputed daily oi! production as stripper. rather than their total imputed

quantity, and thought that undermined the petitioners’ case. TECA's

observation, coming from a court ostensibly having expertise in this area, is

ludicrous. Petitioners were specifically limited to a daily stripper certification of

40 barrels (the amount of stripper oil Tract 117 produced daily before

unitization) by 10 C.F.R. §212.75(b)). §212. 75(b) restricted imputed stripper oil

in units formed before August |. 1977 (such as the Yates Field Unit) to the

amount of stripper oil produced from the tracts constituting the unit prior to

unitization. See discussion, 43 Fed. Reg 33694 (Aug |. 1978), [1974-1981

Transfer Binder-Regulation Preambies} Energy Mgmt. Rep.

(CCH) | 42 383, at p. 40,929. Far from undermining petitioners’ position, the

named petitioners’ consistent and correct application of the certification rules

undermines TECA's incredible opinion and judgment.

17

contains sripper tracts at the expense of this stripper tracts,

yet TECA’s opinion does precisely this. It arbitrarily

imposes the negotiating burden on the stripper tract

owners, not upon the unit which stands to benefit from

inclusion of the tract within its coverage. The Department

of Energy expressly declined to adopt this postion. Rather,

it elected to have state contract law decide the allocation

issue.

The Department of Energy authoritatively stated its

interpretation of its own regulation when it refused Exxon's

Request for an Interpretation:

„ Exxon's e-estion relating to the validity of

Francis’ cei....cations in reference to the

proportion of crude oil claimed by Francis is a

matter that state law must resolve, based upon the

written and oral agreements and understandings

of the participants in the Yates Field Unit.”

(Response of the Department of Energy of March

22, 1978, App. D at A-29).

As been shown supra, at pp. 9 to 14, the District Court

meticulously followed the Department's interpretation.

The District Court examine state law and determined that

under state law, the plaintiff class was entitled to prevail on

summary judgment. TECA choose to reverse the District

Court's interpretation of state law in the guise of inter-

preting the meaning of the regulation’s neutrality.

Furthermore, TECA misunderstood the District Court's

holding. The District Court did not hold that the federal

regulations left the imputed exemption to the pre-

unitization stripper tract property owners. As is clear from

the District Court's judgment, the District Court held that

Texas contract law would allocate to the pre-unitization

stripper tract property owners the imputed exemption

under the particular unit agreements involved in the case.

TECA’s misunderstanding of the District Court's judgment

significantly contributed to its erroneous perception that

the federal regulations were crucial to the District Court's

reasoning.

TECA’s construction of the imputed stripper oil

regulation negates the Department of Energy's clear

intention that state law determine the allocation of imputed

stripper oil. Under TECA’s analysis, the federal regulations

create a presumption of allocation among all unit

participants, rebuttable only by a clear contractual

stipulation to the contrary. Justice Brandeis could have

been describing TECA’s concept of neutrality when he was

said to have commented:

“Neutrality is at times a graver sin than

belligerence.” quoted in Goldman, ed., The

Words of Justice Brandeis. (1954).

As TECA’s interpretation of the imputed stripper oil

regulation presents issues of national economic

importance, this Court should grant a writ of certiorari.

CONCLUSION

For the foregoing reasons, the petition for a writ of

certiorari should be granted and the case set for briefing and

argument this term.

Respectfully submitted,

Frederic Dorwart

J. Michael Medina

Suite 700, 10 E. 3rd St.

Tulsa, Oklahoma 74103

Attorneys for the Petitioners

OF COUNSEL:

HOLLIMAN, LANGHOLZ, RUNNELS

& DORWART

10 E. 3rd St. Suite 700

Tulsa, Oklahoma 74103

CERTIF‘CATE OF MAILING

I. J. Michael Medina, certify that on this 15th day of

September, 1982 placed in the United States mail at

Washington, D.C. three true and correct copies of the

above and foregoing Petition for a Writ of Certiorari, with

correct postage prepaid thereon, addressed to:

James R. Stevens, Jr. David J. Beck

Exxon Corporation Fulbright & Jaworski

P.O. Box 2180 800 Bank of the Southwest

Houston, Texas 77001 Building

Houston, Texas 77002

Attorneys for the Respondent

Exxon Corporation

Robert J. Pickens William B. Browder, Jr.

Marathon Oil Company Stubbeman, McRae, Sealy

P.O. Box 3128 Laughlin & Browder

Houston, Texas 7701! P.O. Box 1540

Midland, Texas 79702

Attorneys for the Respondent

Marathon Oil Company

J. Michael Medina

Attorney for Petitioners