Petitioners Reply Brief — Francis Oil & Gas, Inc. v. Exxon Corp.

fF FILED.

OCT 28 1982

82-453 ALEXANDER L. e

——

IN THE

Supreme Court of the Runited 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 similariiy situated, collectively

and as a class,

Petitioners,

V.

EXXON CORPORATION and MARATHON OIL

COMPANY, individually and on behalf of all other

persons similarly situated, collectively and as a class,

Respondents.

REPLY BRIEF OF PETITIONERS IN SUPPORT OF 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 Street

Tulsa, Oklahoma 74103

(918) 584-1471

Counsel for Petitioners

OF COUNSEL:

HOLLIMAN, LANGHOLZ, RUNNELS & DORWART

Suite 700, 10 E. 3rd St.

Tulsa, Oklahoma 74103

October 29, 1982

*Counsel of Record

A 2

DI CESARE - Printing — 8314161 — Washington, D.C. 20006

The Decision of TECA Creates a Conflict

Among the Circuits Concerning the

Jurisdictional Parameters of TECA. This

Court Should Grant Certiorari to Establish

The Parameters of TECA’s Jurisdiction ....... 2

TECA has Decided a Question of Substantial

Federal Importance that this Court has not

Previously Considered. This Court Should

Grant Certiorari to Consider this Issue of

Substantial Federal Importance .............. 6

D eee 10

TABLE OF AUTHORITIES

A. Cases

Atlantic Richfield Company v. Department of

Energy, 655 F.2d 227 (TECA 1981) ............. 3

Bernhardt v. Polygraphic Co. of America,

nne cocecesccdvce 5

Bray v. United States, 423 U.S. 73 (1973) .......... 2

Citronelle-Mobile Gathering, Inc. v. Gulf

Oil Corp., 591 F.2d 711 (TECA 1979),

cert. denied 444 U.S. 8%0ꝶ ũ ũ ww 6

Coastal States Marketing, Inc. v. New

England Petroleum Corp., 604 F.2d 179

ieee éebvedcesedocecosscsecese 2

Gardner v. New Jersey, 329 U.S. 565 (1947) ....... 5

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

1375 (10th Cir. 1978), cert. denied

„eee 6

Texaco, Inc. v. Department of Energy,

616 F.24 1193 (TECA 1979) ....ccccccccccccces 6

United Siates v. Uni Oil Co., 646 F.2d 946

(Sth Cir. 1981), cert. denied 102

DAA: BESO Scccdecovccccccecsedcccccccccccsees 2

B. Statutes

Emergency Petroleum Allocation Act,

irres e eee 3. 6

82-453

IN THE

Supreme Court of the Anited 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 CORPORATION and MARATHON OIL

COMPANY, individually and on behalf of all other

persons similarly situated, collectively and as a class,

Respondents.

REPLY BRIEF OF PETITIONERS IN SUPPORT OF A

WRIT OF CERTIORARI TO THE TEMPORARY

EMERGENCY COURT OF APPEALS OF THE

UNITED STATES

This Reply Brief is filed in support of the Petition for a

Writ of Certiorari to the Temporary Emergency Court of

Appeals filed by petitioners in this Court on September 15,

1982. Petitioners pray that a Writ of Certiorari be issued to

review the judgment of the Temporary Emergency Court of

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

this case.

INTRODUCTION

The Brief in Opposition filed by the respondents is a

carefully constructed but ultimately unpersuasive attempt

to convince this Court that the Temporary Emergency

Court of Appeals (“TECA”) did nothing out of the

Certiorari, taken in the context of the District Court and

TECA opinions appended thereto, clearly indicate,

however, that a Writ of Certiorari should issue to TECA

and that this Court should place this case down for full

briefing and argument this term.

The bottom line is this: under state law, the petitioners

clearly prevail. Under TECA’s interpretation of the federal

regulations, the respondents prevail. TECA’s interpretation

must therefore be erroneous, since neutral regulations, by

definition, cannot change the outcome.

ARGUMENT

I. THE DECISION OF TECA CREATES A CON-

FLICT AMONG THE CIRCUITS CONCERN-

ING THE JURISDICTIONAL PARAME-

TERS OF TECA. THIS COURT SHOULD

GRANT CERTIORARI TO ESTABLISH THE

PARAMETERS OF TECA’S JURISDICTION.

The decision of TECA creates a conflict among the

circuits concerning the jurisdictional parameters of TECA.

This court should grant certiorari to establish the

parameters of TECA’s jurisdiction. When read carefully,

the Brief in Opposition documents that the position taken

by TECA in the instant case was the identical position

rejected by this Court in Bray v. United States, 423 U.S. 73

(1975), rejected by the Second Circuit in Coastal States

Marketing, Inc. v. New England Petroleum Corp., 604 F. 2d

179 (2d Cir. 1979), rejected by the Fifth Circuit in United

States v. Uni Oil Co., 646 F.2d 946 (Sth Cir. 1981), cert.

denied, 102 S.Ct. 1254 and rejected by TECA itself in

Atlantic Richfield Company v. Department of Energy, 655

F.2d 227 (TECA 1981). These courts have all limited TECA

to jurisdiction over cases where an Emergency Petroleum

Allocation Act (“EPAA”) issue has been adjudicated. The

respondents’ position is that the mere presence of EPAA

involvement, however tangential to the issues actually

adjudicated, gives TECA sufficient jurisdiction to resolve

any and all issues raised on appeal.

Respondents’ position is revealed, perhaps

unintentionally, in their selection of quotations from briefs

filed by petitioners below. Respondents obtain solace from

petitioners’ statement in their Brief in Support of Named

Plaintiffs’ Motion for Class Action Certification that:

IIe Yates Field Unit, ... although governed by

private contract, is subject to a supervening

federal standard of a set amount of stripper well

pricing benefits to be dispersed to the entire unit.”

(emphasis in the Brief in Opposition, quoted at

pp. 6-7 therein).

Careful examination of this statement reveals that

petitioners were simply stating a fact not in dispute: the

amount of stripper well pricing benefits to be dispersed

throughout the entire unit is fixed by federal law. There is

no dispute as to how much stripper well pricing benefits are

available o the Yates Field Unit. The only question in the

litigation is the proper method of apportionment of that

fixed amount of stripper well pricing benefits. By the misuse

of this statement, respondents have taken the position that

simply because the EPAA lurks somewhere in the factual

context, TECA has jurisdiction.

Similarly, respondents also quote from a later brief filed

by petitioners to the effect that:

“[their] claim to ‘stripper well pricing benefits is

totally dependent on individual tracts qualifying

for stripper well pricing prior to unitization.’ ”

(Brief in Opposition at page 7, quoting from

Reply Brief in Support of Named Plaintiff's

Motion for Summary Judgment and Answer

Brief in Opposition to Named Defendants’

Counter Motion for Summary Judgment, at page

12, R. 2433.)

The quoted passage appears grossly out of context. The

entire relevant passage is as follows:

“To the extent relevant, the federal energy

regulations overwhelmingly support the plaintiffs’

Motion for Summary Judgment.

Throughout Exxon’s 23-page excursus on

federal regulatory law, Exxon consistently

ignores the fundamental premise of the imputed

stripper rule. 10 C. F. R. § 212.75(b)ii). Whatever

claim, however specious it may be, the Yates Field

Unit participants have to stripper well benefits is

totally dependent on individual tracts qualifying

for stripper well pricing prior to unitization.

(emphasis in original)

Read in context, several things become apparent. First of

all, the petitioners were not asserting that federal law

governs the issues resolved by the District Court. To the

contrary, the petitioners’ consistent position has been and

continues to be that state law governs, and that federal law

is not relevant. Federal law was only discussed because of

the respondents’ insistence on attempting to convert this

case into a federal energy dispute.' Secondly, the context

reveals that “participants” included any or all the unit

participants as a group and not the petitioners. The

insertion of the word “their” by respondents is flagrantly

misleading. Petitioners claim that their rights to stripper

well pricing benefits arise from state law, pursuant to settled

interpretations of the Federal Energy Administration and

the Department of Energy.

A fair reading of the District Court opinion can only lead

to the conclusion that the District Court’s review of the

federal energy regulations was done only for the limited

purpose of determining whether the federal regulations

changed the outcome otherwise dictated by state law. Asa

matter of state law, the District Court had determined that

the unit agreements did not, and were not intended to,

allocate the proceeds of sale of crude oil. An examination of

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 to their

tracts.*

The TECA decision in the current case stands alone in its

expansion of TECA’s jurisdictional parameters. Standing

alone it creates a conflict with other courts of appeal, the

resolution of such conflict being imperative in view of the

‘In the Reply Brief wherein the material is quoted, the argument

immediately preceding the quoted material clearly argues that the right

of the petitioners to charge stripper well prices for their oil is a private

contractual right to be settled by Texas state law. See Reply Brief, at pp.

7-11, R. 2428-2432.

The cavalier treatment by TECA of the District Court's expert

opinion of state law violated the settled principle that a district court's

interpretion of state law is entitled to great weight. See, e.g., Bernhardt

v. Polygraphic Co. of America, 350 U.S. 198 (1956); Gardner v. New

Jersey, 329 U.S. 565 (1947).

large economic consequences to the oil and gas industry.

See infra, at page 8.

Il. TECA HAS DECIDED A QUESTION OF

SUBSTANTIAL FEDERAL IMPORTANCE

THAT THIS COURT HAS NOT PREVIOUS-

LY CONSIDERED. THIS COURT SHOULD

GRANT CERTIORARI TO CONSIDER THIS

ISSUE OF SUBSTANTIAL FEDERAL

IMPORTANCE.

TECA has decided a question of substantial federal

importance that this court has not previously considered.

This court should grant certiorari to consider this issue of

substantial federal importance.

In stating that TECA had decided an issue of federal

importance, the petitioners did not suggest that TECA had

jurisdiction to decide this issue. Rather, TECA took it upon

itself to decide the case on appeal in such a manner to both

create and resolve a substantial federal issue: the

interpretation of several regulations under the federal

The cases of Citronelle-Mobile Gathering, Inc. v. Gulf Oil Corp.

591 F.2d 711 (TECA 1979), cert. denied 444 U.S. 879 and Mountain

Fuel Supply Co. v. R. Johnson, et al, $86 F.2d 1375 (10th Cir. 1978),

cert. denied 444 U.S. 952, are not to the contrary. In both cases the

plaintiff sued under breach of contract and the defendant purchaser

defended on the basis of illegality under the EPAA. TECA had

jurisdiction because

“the resolution of the litigation in its entirety requires

application and interpretation of the EPAA...” Citronelle,

supra, 591 F.2d at 716.

A decision by TECA on the EPAA issue would thus resolve the entire

litigation. In the present case, the dispositive issue is not an EPAA issue

but an issue of state law. TECA cannot resolve the entire litigation. See,

Texaco, Inc. v. Department of Energy, 616 F. 2d 1193, 117 n. 2(TECA

1979).

energy regulatory scheme. The fact that TECA took it upon

itself to decide this issue is not an indication that this issue

was properly presented in the case before TECA.

In any event, assuming that TECA had jurisdiction to

resolve these issues, IECA's interpretation of the federal

energy regulations is clearly erroneous and must be reversed

by this Court. The Brief in Opposition has unsuccessfully

attempted to disguise what TECA has done. Quite simply,

TECA has turned the federal regulatory scheme on its head.

While paying homage to the concept of neutrality, TECA

has really enviscerated the concept of neutrality and state

law determination. According to the dictates of the TECA

decision, state law will not govern the allocation of imputed

stripper oil. A rebuttable presumption, created by federal

law, will govern the allocation of imputed stripper oil. For

the stripper tract owner to retain his imputed stripper oil

upon unitization, the unitization agreement would have to

have a specific and unequivocal reservation of rights ir 1e

stripper tract owner. Without this clear and unequivocal

statement, federal law will presume that the imputed

stripper oil is to be allocated to all the participants in the

unit, no matter what the supposedly governing state law

would otherwise hold. This result cannot be what the FEA

(later DOE) had in mind. The agency on several occasions

specifically noted that state law would govern.

The District Court, quite unlike TECA, carefully heeded

the principles set forth by the Federal Energy

Administration and the Depariment of Energy. The

District Court examined state law to determine the effect of

state law on the allocation of imputed stripper oil. After

determining that state law would leave those benefits in the

stripper tract owner absent a prior unequivocal contractual

provision to the contrary, the District Court then examined

the federal regulations for the limited purpose of

determining whether those regulations overruled state law.

Obviously, the federal regulations could not overrule state

law since the federal regulations themselves are to be

construed in a neutral fashion, with no bias towards either

the stripper tract owner or the unit participants.

Again, the bottom line is this: under state law, the

petitioners clearly prevail. Under TECA’s interpretation of

the federal regulations, the respondents prevail. TECA’s

interpretation must therefore be erroneous, since neutral

regulations, by definition, cannot change the outcome.

The significance of the TECA decision in the oil and gas

industry is perhaps best summarized by a concise analysis of

the decision fund in the Executive Report of the

Independent troleum Association of America, a

prominent trade organization of independent producers.“

In its September, 1982 edition, the report discussed the

effect of the TECA decision and its possible consequences

and requested that this court review the TECA decision:

“Will a unitized stripper lease owner be able to

claim independent stripper well exemptions? and

will TECA claim exclusive jurisdiction to hear

appeal of tax cases involving windfall profit tax

application of DOE regulations?

In summary, TECA held that under the imputed

stripper well rule ‘that a property qualified as a

‘The Independent Petroleum Association of America was founded in

1929 and has a membership of 5700, composed principally of

independent oil and gas operators, land and royalty owners and others

interested in the production of crude oil and natural gas. One of its most

important functions is to represent the interest of small oil and natural

gas producers in legislative and regulatory areas at the federal level. Its

executive offices are located at 1101 16 St., N.W., Washington, D.C.

‘stripper well lease’ prior to unitization would

cease to qualify as separate property, with a

separate exemption, upon unitization; . . . The

court also held that.. the previous qualified

stripper well leases retain significance only for

purposes of calculating the quantity of imputed

stripper oil these leases contributed to the unit.”

And “...more important, the (operators) lost the

_ ability to claim, unilaterally, a stripper well crude

oil exemption when their preunitization

property“ became part of the unit.”

The TECA decision should be appealed to the

U.S. Supreme Court. (Executive Report at p. 2)

(emphasis in the original).

Quite clearly, TECA has decided an important issue of

federal law. This court should take the opportunity

presented by the Petition for a Writ of Certiorari and

definitively resolve the issue that TECA has decided.

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

CERTIFICATE OF MAILING

I. J. Michael Medina, certify that on this 28th day of

October, 1982 placed in the United States mail at

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

above and foregoing Reply Brief of Petitioners in Support

of a Writ of Certiorari, with co. ect postage prepaid

thereon, addressed to:

James R. Stevens, Jr. David J. Beck

Exxon Corporation Ronald Secrest

P.O. Box 2180 Fulbright & Jaworski

Houston, Texas 77001 800 Bank of the Southwest

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

Attorneys for the Respondent

Marathon Oil Company

J. Michael Medina

Attorney for Petitioners