Petition — Louisiana v. Department of Energy

8 2 i 1 O07 6 Office -Suoreme Court, U.S.

Fit. ED

No. DEC 23 1982

RTO L. STEVAS,

CLERK

IN THE

Suprenve Court of the United States

OCTOBER TERM, 1982

STATE OF LOUISIANA, TEXACO INC. and

THE LOUISIANA LAND AND EXPLORATION COMPANY,

Petitioners,

Vv.

DEPARTMENT OF ENERGY and

JAMES B. EDWARDS, Secretary of Energy,

Respondents.

PETITION FOR A WRIT OF CERTIORARI TO THE

TEMPORARY EMERGENCY COURT OF APPEALS

OF THE UNITED STATES

ALLAN ABBOT TUTTLE

Counsel of Record

JAMES R. PATTON, JR.

GEORGE M. BORABABY

PATTON, Boccs & BLOW

2550 M Street, N.W.

Washington, D.C. 20037

(202) 457-6000

Attorneys for Petitioner

State of Louisiana

ANDREW J. KIRKPATRICK, JR. JOHN R. COPE

WiLuiaM O. LAMOTTE, IIT THOMAS D. MANForD, III

RICHARD D. ALLEN Darcl L. Rock

Morris, NICHOLS, ARSHT & TUNNELL BRACEWELL & PATTERSON

Twelfth & Market Streets 1825 I Street, N.W.

P.O. Box 1347 Washington, D.C. 20006

Wilmington, Delaware (202) 828-5800

(302) 658-9200 Attorneys for Petitioner

Attorneys for Petitioner Texa. Inc. The Louisiana Land And

Exploration Company

Other counsel for petitioners s:¢ listed on inside cover.

WILSON - Epes PRINTING Co., INC. - 789-0096 - WASHINGTON, D.C. 20001

THE HONORABLE DAviD C. TREEN

Governor, State of Louisiana

THE HONORABLE WILLIAM J. GUSTE, JR.

Attorney General, State of Louisiana

THE HONORABLE FRANK P. SIMONEAUX

Secretary, Department of Natural Resources,

State of Louisiana

THE HONORABLE PATRICK H. MARTIN

Commissioner of Conservation,

State of Louisiana

HARRY FE. BARSH, JR.

DAvID R. FROHN

CAMP, CARMOUCHE, PALMER, BARSH & HUNTER

A Professional Law Corporation

P.O. Drawer 2001

Lake Charles, Louisiana 70602

(318) 433-9355

Of Counsel for Petitioner State of Louisiana

STEPHEN H. BARD

Texaco Ine.

2000 Westchester Avenue

White Plains, New York 10650

(914) 253-4000

PATRICK T. CAFFERY

CAFFERY, OUBRE, GIBBENS & BLACKWELL

420 Iberia Street

New Iberia, Louisiana 70560

(318) 364-1816

Of Counsel for Petitioner Texaco Inc.

J. HENRY PHILLIPS, ITI

CHARLES D. MARSHALL, JR.

MILLING, BENSON, WOODWARD, HILLYER,

PIERSON & MILLER

Eleventh Floor

Whitney Building

New Orleans, Louisiana 70130

(504) 581-3333

Of Counsel for Petitioner The Louisiana Land

And Exploration Company

December 23, 1982

QUESTIONS PRESENTED

The “property” concept was the basic building block

of the federal program under which the prices of crude

oil produced in the United States were controlled. In

regulations issued when that price control program was

created in 1973, the term “property” was defined as “the

right which arises from a lease or from a fee interest to

produce domestic crude petroleum.”

The questions are:

1. Where the Temporary Emergency Court of Appeals,

which has exclusive appellate jurisdiction over cases aris-

ing under that federal price control program, has twice

ruled that the focus of the “property” definition is not

on the “lease or fee interest” but on the “right to pro-

duce” crude oil, and that the sovereign acts of State regu-

latory authorities, such as the establishment by Louisi-

ana’s Office of Conservation of production units, delimit

that “right to produce,” did that court err in later up-

holding an agency interpretation of “property” that ig-

nored the significance of such sovereign acts and, instead,

interpreted “property” as synonymous with the “lease or

fee interest.”

2. May the Temporary Emergency Court of Appeals

defer, without analysis, to the agency’s “general position”

that the lease or fee interest, not the sovereign act of a

State regulatory authority, defines the “property,” when

that position is not supported by the language of the

“property” definition, was first adopted three years after

the ».omulgation of that definition, is inconsistent with

earlier agency interpretations of that definition and can-

not be reconciled with that court’s own prior construction

of that definition.

(i)

ii

PARTIES TO THE PROCEEDING

All parties to the proceeding in the Temporary Emer-

gency Court of Appeals are listed in the caption of the

case in this Court.*

* The names of all parent companies, non-wholly-owned subsidi-

aries and affiliates of Texaco Inc. are set forth in Appendix H hereto.

The following are the names of all parent companies, non-wholly-

owned subsidiaries and affiliates of The Louisiana Land And Ex-

ploration Company: CLAM Petroleum Company (affiliate); and

The Louisiana Land Offshore & Exploration Company (non-wholly-

owned subsidiary).

TABLE OF CONTENTS

QUESTIONS PRESENTED .............00...c-c.cseosccosecsesesseee soe

PARTIES TO THE PROCEEDING .................00.00000000:

SE WO FR r IO OID cccccrcaciscesesneinsoscnsinestcartpacesen

IE RINE csack:coxnscsarccnnsissbetantbdantnceduediianmesmteiotin

IIT INUIT cc snchsstttndsdeccenesnasiseess senneapaicinthcnnuldeedeassieats

STATUTES, REGULATIONS AND RULINGS IN-

III sacri casnss debe hadaredsinoniersissiaeebptdonunhceebadininesabiiasts

STATEMENT OF THE CASE ........ sia hahaa teisias vesteabstatiols

Regulatory Backgroun .....................cccccccsscsccccssss vee

Crude Oil Production And Regulation In Louisi-

RE St eS ero AN Re era DR SI OD

REASONS FOR ALLOWING THE WRIT

1. The meaning of “property” is an important

I ie I BI invccsceckctictecvertunciccseccheoreeenics

2. The Temporary Emergency Court of Appeals

has confused rather than clarified the meaning

Be gE Be decapebaeineahptuatanente

8. The Temporary Emergency Court of Appeals’

uncritical acceptance of the DOE’s general

“lease defines the property” interpretation has

denied petitioners their right to meaningful

ec ebanbatnias

PEE GIES ESS REE Ae Or AMC SD

18

23

iv

TABLE OF AUTHORITIES

CASES: Page

American Ship Building Co. v. NLRB, 380 U.S.

ON RRR ce eee Ree eater 24

Batterton Vv. Francis, 482 U.S. 416 (1977) ............ 24

Chrysler Corp. v. Brown, 441 U.S. 281 (1979).... 23,24

Energy Reserves Group, Ine. Vv. Dep't of Energy,

589 F.2d 1082 (Temp. Emer. Ct. App. 1978)... 26

General Electric Co. v. Gilbert, 429 U.S. 125

- igre ER aed Es ee cei et te ere WD 23

Grigsby Vv. Dep’t of Energy, 585 F.2d 1069, modi-

fied on rehearing, 585 F.2d 1080 (Temp. Emer.

Ct. App. 1978), cert. denied, 440 U.S. 908

OORRIE CORR ED an 18, 14, 18, 19, 20, 21, 22, 24

Pennzoil v. Dep’t of Energy, 680 F.2d 156 (Temp.

pe eS ee 15, 20, 22, 24

Ptasynski v. United States, 550 F. Supp. 549

IPI: TIITIEIIED. << caisconatebishiniienasctarsennapnssiigsicagunilasiahieeseimeailal 16

Skidmore v. Swift & Co., 323 U.S. 184 (1944)... 18, 15,

28, 25

Texaco Inc. V. Dep't of Energy, 490 F. Supp. 874

UII MIIIITEDY’ ion dhcsscec\-nieesdnsieanemideimbiabbliconeeadmnatsdiieanind 11

Volkswagenwerk v. Federal Maritime Comm’n,

ee | a rere 24

STATUTES:

Administrative Procedure Act of 1946, as amended,

nn ae 11

it: SERIES UNI nsesiechitonvscutneceeeginigtlonseanacasieniemebtande 11, 25

Crude Oil Windfall Profit Tax Act of 1980, P.L.

96-228, 94 Stat. BBO (19BO) .............eccccccccccccssseees 16, 17

Department of Energy Organization Act, P.L. 95-

91, 91 Stat. 589 (1977), 42 U.S.C. § 7192(b)....... 11

Economic Stabilization Act of 1970, as amended,

ee IIIT aecainntnts ccvncsdentgcrsavcrnnstioatccustsaii 2,4,18

EER nN ROS ae ELON 11

RS, ARE ERI UN 11

ED GURU. wincsaschcscstasaciantlesensclltlientsamisiaisaaibiion 18

EIEN SEE TIED. ccsccqetbteinicconnbeestadidpenavebthseemtunti ‘ 2

v

TABLE OF AUTHORITIES—Continued

Page

Emergency Petroleum Allocation Act, P. L. 93-

159, 87 Stat. 627 (1973)

Bk Poke |) ne kb ETE A Seat 2

i nO IID WIE tceestccccacescecnceschsesnsecntnnsase 11

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

89 Stat. 871 (1975), 42 U.S.C. § 6893 (b) _.......... 11

I TD oc acscscinccitanevrsccccsbleutiboceencuounicbnagdionis 2

NN I 0 6s citsctscnsCacsndmassidipgleiendantebelsoseaniiaties 11

La. Rev. Stat. Ann.

ER ER OO eR Se ECD 9

| RE Niles einer bree Aaa 9

RET SRN OR Sere Oa SO RI 9

LEGISLATIVE MATERIALS:

Actions Taken By The Federal Energy Adminis-

tration To Implement The Pricing Requirements

Of The Energy Policy And Conservation Act:

Hearing Before The Subcommittee On Energy

And Power Of The House Comm. On Interstate

And Foreign Commerce, 94th Cong., 2d Sess.

RR Ri IRE RR RA eR es oR Ee ee 6

S. 1080, 97th Cong., 2d Sess. 128 Cong. Rec. $2713

(daily ed., March 24, 1982) ......0...000000ccce 25

H.R. 746, 97th Cong., 1st Sess., 127 Cong. Rec. H73

(daily ed., January 6, 1981) .................000.00.000000. 25

S. Rep. No. 507, 92nd Cong., Ist Sess. (1971) ........ 18

S. Rep. No. 394, 96th Cong., Ist Sess. (1979) .... ... 17

S. Rep. No. 284, 97th Cong., 1st Sess. (1981) ........ 26

H.R. Rep. No. 435, 97th Cong., 2d Sess. (1982)... . 25

EXECUTIVE ORDERS:

Executive Order No. 11723, 38 Fed. Reg. 15763

I A 4

Executive Order No. 12287, 46 Fed. Reg. 9909

SINE IA IED: encidovicvctocctchiiasdsitnoutsbitohiaprennetcnes 16

vi

TABLE OF AUTHORITIES—Continued

CODE OF FEDERAL REGULATIONS: Page

6 C.F.R. § 150.353 et seq., 38 Fed. Reg. 22536

CI Fi ND ances ciccsecanathicceneesineenninicancnreneennn 2

10 C.F.R. Part 205, Subpart O (1982) ................. 11

ie ee OD vctesrrecersceteteccseeniocintonscnece 2

26 C.F.R. § 150.4996-1(i) (1), 47 Fed. Reg. 50858

SOIT TI UID eccsersstenneccsencseticastnnienseessnmanss 17

FEDERAL REGISTER:

88 Fed. Reg. 15763 (June 15, 1978) ..................... 4

88 Fed. Reg. 19464 (July 20, 1973) ........0.0......... 4

88 Fed. Reg. 22536 (August 22, 1973) ...........0...... 2,5

89 Fed. Reg. 1924 (January 15, 1974) .................. 2

40 Fed. Reg. 40832 (September 4, 1975) ............ 5, 6, 19

41 Fed. Reg. 16179 (April 16, 1976) ........000....... ee: |

41 Fed. Reg. 36172 (August 26, 1976) ............... 2,5,7,8

42 Fed. Reg. 3628 (January 19, 1977) .................. 2

46 Fed. Reg. 9909 (January 30, 1981) —.............. 16

47 Fed. Reg. 50858 (November 10, 1982) ............ et

ADMINISTRATIVE RULINGS:

Ruling 1975-15, 40 Fed. Reg. 40832 (September 4,

SI sick Srodiadsinanntideceidiibsabasiiaaeidabdsadaaditiatenmadcihanicigendeasodnl 5, 6,19

Ruling 1977-1, 42 Fed. Reg. 3628 ee 19,

og, Sy nee BAUR Se ROM OR Re SELLE ERY A 2

OTHER AUTHORITIES:

Davis, Administrative Law Of The Seventies

(1976) ....... ccdasibtiaunddiidceekaesdioch aide dicedsaseskeurtataando 26

U.S. General Accounting Office, Uncertainties

About The Definition And Scope Of The Prop-

erty Concept May Reduce Windfall Profit Tax

Revenues, GAO/GGD 82-48, May 13, 1982 ........ 17

IN THE

Supreme Corwt of the United States

OCTOBER TERM, 1982

No.

STATE OF LOUISIANA, TEXACO INC. and

THE LOUISIANA LAND AND EXPLORATION COMPANY,

Petitioners,

Ve

DEPARTMENT OF ENERGY and

JAMES B. EDWARDS, Secretary of Energy,

Respondents.

PETITION FOR A WRIT OF CERTIORARI TO THE

TEMPORARY EMERGENCY COURT OF APPEALS

OF THE UNITED STATES

The petitioners the State of Louisiana (“Louisiana”),

Texaco Inc. (“Texaco”) and The Louisiana Land And

Exploration Company (“LL&E’’) respectfully pray that

a writ of certiorari issue to review the judgment and

opinion of the Temporary Emergency Court of Appeals

entered in this proceeding on October 4, 1982.

OPINIONS BELOW

The opinion of the Temporary Emergency Court of

Appeals is reported at 690 F.2d 180 (App. A). The

opinion of the district court denying respondents’ motions

to dismiss is reported at 507 F.Supp. 1865 (App. D).

2

The opinion of the district court granting summary

judgment to petitioners is reported at 519 F.Supp. 351

(App. E).

JURISDICTION

The judgment of the Temporary Emergency Court of

Appeals was entered on October 4, 1982 (App. B). The

Order of that court denying rehearing with suggestion

of rehearing en banc was entered on November 26, 1982

(App. C). This Court has jurisdiction under Section

211(g) of the Economic Stabilization Act of 1970, as

amended, 12 U.S.C. § 1904 note, and 28 U.S.C. § 1254(1).

STATUTES, REGULATIONS AND

RULINGS INVOLVED

This case arises out of petroleum pricing regulations

promulgated by the Cost of Living Council (“CLC”)

under the authority of the Economic Stabilization Act of

1970 (“ESA”), as amended, 12 U.S.C. § 1904 note, as

part of Phase IV of the Economic Stabilization Program,

and originally codified at 6 C.F.R. § 150.353 et seq. See

88 Fed. Reg. 22536 (August 22, 1973). Pursuant to

Section 4(a) of the Emergency Petroleum Allocation Act

of 1973 (“EPAA”), as amended, 15 U.S.C. § 753(a), the

then Federal Energy Office (“FEO”) republished and

recodified the CLC petroleum regulations, without sub-

stantive change, as the Mandatory Petroleum Allocation

and Price Regulations, 10 C.F.R. Parts 211 and 212.

89 Fed. Reg. 1924 (January 15, 1974). The regulatory

definition involved in this case was then codified at 10

C.F.R. § 212.72 (App. F). The challenged agency inter-

pretation of that definition was first set out in the

preamble to a rulemaking dated August 20, 1976. 41 Fed.

Reg. 36172 (August 26, 1976) (App. G). That inter-

pretation was later republished in the form of an agency

Ruling, Ruling 1977-1. 42 Fed. Reg. 3628 (January 19,

1977).

38

STATEMENT OF THE CASE

1. This case presents the issue of the meaning of the

term “property,” a term of “fundamental importance” to

the regulatory program under which the price of crude

oil produced in the United States was controlled. See

App. A at 4a. When it established the price contro] pro-

gram in August 1973, the Cost of Living Council defined

“property” as “the right which arises from a lease or

from a fee interest to produce domestic crude petroleum.”

Id. at 5a. With no guidance from the CLC, and under

threat of civil and criminal sanctions, crude oil producers

had immediately to apply that definition to thousands of

producing entities and to price their crude oil accordingly.

In Louisiana, a large percentage of crude oil is found

under vast State leases that may cover hundreds of square

miles. See App. E at 48a. Since 1940, Louisiana’s Office

of Conservation (“LOC”) has regulated crude oil pro-

duction in the State by, inter alia, establishing reservoir-

wide production units within these State leases and con-

trolling the amount of crude oil produced from these

units. Jd. at 47a-48a. Reflecting the pervasive effect that

the LOC’s control over production within Louisiana has

on the “right to produce” crude oil, crude oil producers

in Louisiana, including petitioner Texaco, designated such

Louisiana production units as “properties” for federal

pricing purposes.

In August 1976, the Department of Energy (“DOE”) ,’

for the first time, and in the face of earlier contrary

interpretations, interpreted “property” to preclude the

designation of separate Louisiana production units as

“rights to produce” and, hence, “properties.” App. D at

35a-36a. On the basis of that interpretation, the DOE

then commenced administrative proceedings against peti-

1 As used herein, the term “DOE” includes the DOE and its

predecessor agencies, the FEO and the Federal Energy Administra-

tion (“FEA”), and, where applicable, respondent Secretary of

Energy.

4

tioner Texaco and others, alleging over one billion dollars

in crude oil pricing overcharges. In its decision in this

case, the Temporary Emergency Court of Appeals upheld

the DOE’s belated interpretation, despite the fact that, in

an earlier decision, that same court had ruled that orders

creating Louisiana production units delimit the “right to

produce” and thus create “properties.”

The court went on to grant summary judgment for the

DOE despite the fact that the Department had neither

sought such relief nor made a record to support it and,

indeed, had argued that summary judgment was inap-

propriate.

Regulatory Background

2. In June 1973, as part of the Economic Stabilization

Program instituted under the Economic Stabilization Act

of 1970, as amended, the President imposed a freeze on

the prices of all non-agricultural commodities and ser-

vices, including domestically-produced crude oil. See Ex-

ecutive Order No. 11728, 38 Fed. Reg. 15763 (June 15,

1973). Shortly thereafter, in July 1973, the Cost of

Living Council, “recogniz[ing] a need to stimulate in-

creased [domestic crude oil] production,” proposed to

modify the crude oil price freeze by creating, as an

“incentive plan,” a “two-tier pricing system for crude

oil.” 38 Fed. Reg. 19464, 19467 (July 20, 1973). Basi-

cally, under that system, the amount of oil produced

monthly from a “property” up to the amount produced

from that “property” in the corresponding month of 1972

was classified as “old oil,” to be sold at controlled prices.

Increased production from that “property,” and produc-

tion from newly-developed “properties,” were classified as

“new oil,” to be sold at higher market-set prices. See

App. A at 4a. This “two-tier” system had a dual objective:

to control inflation by holding down the price of currently-

produced oil, and to stimulate new production by allow-

ing “new oil” to be sold at uncontrolled market prices.

Id. at 14a.

5

As the court below recognized,

Because the two-tier system was thus based on a

property-by-property comparison of current produc-

tion with 1972 production, the definition of the term

“property” was of fundamental importance.

Id, at 4a. Notwithstanding the importance of the concept,

the CLC’s July 1973 Notice of the proposed pricing regu-

lations did not include a definition of the term “property.”

In the final regulation, effective August 19, 1973, the

CLC did define the term “property”:

“Property” is the right which arises from a lease or

from a fee interest to produce domestic crude petro-

leum.

88 Fed. Reg. 22536, 22538 (August 22, 1973). See App.

F. That definition, in the words of the court below, was

“rudimentary.” App. A at 4a. Furthermore, the preamble

to the regulation was silent as to the definition’s meaning

and application. And, as the agency itself later acknow!-

edged, neither the CLC nor its successors, the Federal

Energy Office and the Federal Energy Administration,

gave producers any guidance as to its meaning for more

than two years. 41 Fed. Reg. 36172, 36175 (August 26,

1976), Anp. G at 69a-70a. Nonetheless, producers had to

apply that “rudimentary” definition immediately to thou-

sands of producing entities to identify their “properties”

for price co trol purposes.

3. The DOE did not issue the first public interpreta-

tion of the “property” definition until September 1975,

fully two years after the initial promulgation of the

regulation. App. A at 5a. In that interpretation, Ruling

1975-15, the DOE acknowledged the “right to produce”

as the core concept of the “property” definition:

For purposes of the price regulations then, the prop-

erty concept is one that identifies the right to produce

crude oil, whether that right arises from a lease or

from a fee interest,

40 Fed, Reg. 40882 (September 4, 1975) (emphasis

original), Ruling 1975-15 further recognized that pro-

ducing entities other than leaseholds or fee interests, such

as “units,” could embody the “right to produce” and thus

define “properties” for purposes of federal price controls,

The agency also informed producers that, although the

mere existence of separate reservoirs within the bound-

aries of a single lease would not, in itself, give rise to

separate “properties,” “where there are separate and

distinct rights to produce crude oil from each reservoir,

cach reservoir accordingly represents a different prop-

erty.” Id, at 40838,

4, However, the DOE vemained unclear as to the

meaning and scope of the “right to produce” concept, In

testimony before a congressional committee, the FEA’s

Deputy Administrator admitted: “It was not clear

throughout that period [August 19738 to August 1976]

exactly what the [1973 “property”] regulation meant; it

was not even clear to the regulatory agency itself.” *

5. In April 1976, almost three years after the CLC

promulgated the “property” definition, the DOE pub-

lished its “tentative interpretation” as to what “property”

meant “since the initiation of the price regulations,” 41

Fed, Reg. 16179, 16180 (April 16, 1976), The DOE

emphasized Ruling 1975-15’s recognition that “FEA regu-

lations utilize, as a reference, a property concept, based

upon the right to produce crude oil, ... .” Jd, at 16179,

The DOE “tentatively concluded” that state-recognized

production units could constitute separate “properties”

under the 1978 definition, /d, at 16180, Indeed, the DOE

* Actions Taken By The Federal Energy Administration To Im-

plement The Pricing Requirementa Of The Energy Policy And Con-

servation Act; Hearing Before The Subcomm, On Energy And

Power Of The House Comm, On Interstate And Foreign Commerce,

Mth Cong., 2d Seas, 108 (1976) (Statement of Hon, John A, Hill),

.

specifically recognized that Louisiana production units do

constitute such “rights to produce”:

For example, in Louisiana, where unitization may

be compelled by the Commissioner of Conservation,

the recognition by the state of producing entities is

generally based upon factors other than merely sur-

face boundaries, Such productive entities are called

“units,” .... [[]n Louisiana each state-recognized

unit may therefore gb | describe a prop-

erty, with each lease upon which is reported non-

unitized production also appropriately describing a

separate property,

Id, (emphasis added), Thus, as late as April 1976, the

DOE interpreted the original “property” definition to

mean that Louisiana reservoir-wide units are “proper-

6. However, in August 1976, the DOE abruptly re-

versed itself and issued the “formal interpretation” of

the 1973 “property” definition that petitioners challenge

in this action, 41 Fed, Reg, 36172, 36178 (August 26,

1976), App. G at 52a, 88a, In that interpretation, the

DOE all but disregarded ite prior pronouncements that

the “right to produce” crude oil could derive from in-

struments other than leases or deeds, Instead, it took

the position that the term “right to produce” is “gen-

erally synonomous [sic] with the concept of ‘working

interest,’ ...,”” App. G at 74a, and that the “working in»

terest” is “ ‘(t]he operating interest under an oil and gas

lease,’"’ Id, at 67a, From this, the DOE concluded:

[T]he literal meaning of the term “property,” as

defined by FEA, is generally to be understood as

synonymous with the physical “tract” or “premises”

as to which a working interest is established by an

oil and gas lease, or by a fee interest,

- “ 7 7

Although the evidence is not unambiguous, FEA has

concluded that CLC by its definition of the term

“property” intended to refer to the premises de-

scribed in the oil and gas lease pursuant to which

crude oil was being produced,

Id, at 66a, By imputing this intention to the CLC, the

DOE held that “property” had, since August 1973, meant

the premises defined by a lease or fee interest, but not by

other “rights to produce,”

The DOE's 1976 interpretation, if correct, meant that

producers of crude oil in Louisiana should not have

regarded State orders creating reservoir-wide producvion

units as “rights to produce” and should not on that basis

have treated such units as “properties.” However, at the

same time that it construed the “property” definition as

having precluded such treatment since August 1973, the

DOE ruled that each state-recognized reservoir could, as

of September 1, 1976, be treated as a “property.” Jd, at

86a,"

Crude Oil Production And Regulation In Louisiana

7. For many years, Louisiana has been the second

largest crude oil producing state in the continental United

States, A major portion of Louisiana crude oil produc-

tion is derived from premises leased from the State, In

many instances, the areas encompassed by such leases are

vast, See App. E at 48a, For example, as of August

1973, when the CLC imposed the price control system,

over 60 percent of Texaco’s annual production of more

"The DOE redefined “property” to add a second sentence to the

original definition, Effective September 1, 1976, “property” was

defined as followa:

“Property” means the right to produce domestic crude oil,

which arises from a lease or from a fee interest, A producer

may treat as a separate property each separate and distinct

producing reservoir subject to the same right to produce crude

oll, provided that auch reservoir is recognized by the appropri-

ate governmental regulatory authority as a producing forma-

tion that is separate and distinct from, and not in communica.

tion with, any other producing formation,

App. G at 110a,

than 100 million barrels of Louisiana crude oil came from

just six such large State leases. Two such leases, State

Leases 835 and 840, both leased in 1936, each originally

covered more than 1,200 square miles—each just slightly

less than the area encompassed by the State of Rhode Is-

land, State Lease 340, after selections and releases of por-

tions thereof by Texaco, now covers more than 271 square

miles, with oil from that Lease being produced from eight

separate tracts, some of which are located more than 40

miles apart, State Lease 385 now covers more than 21

square miles and consists of three separate tracts, one of

which is located more than 28 miles from the other two.

Texaco’s four other large State Leases referred to above

have similar broadly-seattered producing configurations.

8 Since 1940, long before the institution of federal

crude oil price controls, Louisiana has regulated oil and

gas production within the State on the basis of oil and

gas production units, These units are established in order

to insure the orderly development of petroleum resources,

to prevent ce waste of such resources and to avoid the

drilling of unnecessary wells, La. Rev. Stat. Ann. 30:2,

80:3(1), 80:9B, See App. A at 7a. Such units, whether

“veservoir-wide” (i,¢,, one unit encompasses an entire

producing reservoir) or less than reservoir-wide (7.e.,

more than one unit is established to extract crude oil

from a single reservoir), are established on the basis of

the geological limits of the producing reservoir, not on

the basis of lease lines or fee interest boundaries. App.

E at 47a,

The Louisiana Office of Conservation has promulgated

detailed restrictions on the production of oil and gas and

has imposed extensive requirements for reporting drilling

and production activities. The LOC sets an allowable

vate of production for each unit and limits production

from that unit to that allowable rate. Production is

generally reported to Louisiana authorities for royalty

and severance tax purposes on a unit basis. Through

10

this comprehensive regulatory system, the State per-

vasively controls and regulates the amount and rate of

crude oil production within its borders.

9. When the two-tier pricing system was established in

August 19738, crude oil producers had two weeks in which

to make their “property” designations. The only guid-

ance that producers had in making their designations

were the “rudimentary” language of the definition itself;

the knowledge that the two-tier system was designed to

provide an incentive to increase production; and the ex-

pectation that the price control system was to expire in

eight mouths or less and thus was to be implemented with

minimal disruption to normal business functions. None

of these factors suggested that producers could treat only

leaseholds or fee interests as “properties.” Indeed, in

Louisiana, the incentive objective dictated that producers

not treat the lease as the “property” since, if the entire

lease were treated as a single “property,” the natural de-

cline in output from currently producing reservoirs un-

derlying a large multi-reservoir lease would deny the

intended incentive of “new oil” prices to oil produced

from newly-developed reservoirs on that lease. See App.

E at 48a. Moreover, in Louisiana, Texaco and other pro-

ducers had in place reporting and accounting procedures

that were based on the long-standing LOC system of reg-

ulating and monitoring oil and gas production on the

basis of production units. Jd. at 47a. Consequently, these

producers designated as separate “properties” separate

reservoir-wide LOC production units located within the

geographic boundaries of a single lease. App. A at 7a.

Proceedings Below

10. In May 1979, the DOE issued Proposed Remedial

Orders (“PRO”) against petitioner Texaco and other

producers of crude oil in Louisiana. The PRO against

Texaco alleged that Texaco had overcharged purchasers

of crude oil by $748 million and sought, including inter-

est, $888 million in refunds. App. A at 8a; App. D at

30a. Texaco filed a Notice of Objection to the PRO,

11

whereupon an administrative proceeding was instituted

before the DOE’s Office of Hearings and Appeals, pur-

suant to 10 C.F.R. Part 205, Subpart O. App. D at 30a-

8la.

11. In May 1980, Louisiana brought the instant ac-

tion, challenging the DOE’s 1976 interpretation of the

1973 “property” definition, in the United States District

Court for the Western District of Louisiana.‘ Texaco and

LL&E intervened as of right. The district court granted

petitioners’ motion for summary judgment, declaring that

petitioners could properly have treated reservoir-wide

LOC units as “properties” and enjoining the DOE from

enforcing against petitioners any contrary “property” in-

terpretation. App. E at 49a.°

The court observed that the original “property” defini-

tion promulgated by the CLC was ambiguous, unclear

and “offered no clue whatsoever” that separate reservoir-

* The district court had jurisdiction over this action under Sec-

tions 210(a) and 211(a) of the ESA, as carried forward by Section

5(a)(1) of the EPAA, as amended, 15 U.S.C. §754(a)(1); See-

tion 532(b) of the Energy Policy and Conservation Act, as

amended, 42 U.S.C. § 6393(b); and Section 502(b) of the Depart-

ment of Energy Organization Act, 42 U.S.C. §7192(b). Jurisdic-

tion was also based on 28 U.S.C. § 1331 and on the Administrative

Procedure Act, 5 U.S.C. §§ 702 and 706.

5 Texaco had initially filed suit ayainst the DOE in the United

States District Court for the District of Delaware. Louisiana and

LL&E intervened in that action. On the DOE’s motion, that court

dismissed the complaints of Texaco and LL&E on the ground that

they were not ripe for adjudication. The court declined to dismiss

Louisiana’s complaint, withholding decision until the DOE filed its

answer and indicated whether it would challenge venue in Dela-

ware. Texaco Inc. Vv. Dep't of Energy, 490 F. Supp. 874 (D.Del.

1980). Louisiana voluntarily dismissed its complaint in that court

and brought this action in Louisiana.

6 Earlier, the district court had denied respondents’ motions to dis-

miss petitioners’ complaints for lack of standing and ripeness and

for failure to exhaust administrative remedies. App D.

12

wide LOC units could not be treated as separate “prop-

erties.” Jd. at 49a, 50a. It noted that the “right to

produce may arise from more than one basis or designa~-

tion.” Id, at 47a. The court then discussed the char-

acteristics of reservoir-wide LOC units and concluded

that “the designation of such units as properties is con-

sistent with the objectives of the two-tier pricing system

established in 1973.” Id. at 48a. On this basis, the court

decided that it was reasonable for producers in Louisiana

to have treated such units as “properties” prior to the

DOE’s belated adoption of its “property” interpretation in

August 1976. Id. at 49a.

The court further found that the DOE itself had been

unclear as to the meaning of the “property” definition

before August 1976. Id. It observed that the DOE had

tentatively concluded in April 1976 that reservoir-wide

LOC production units could properly be designated as

“properties.” Jd. The court decided that the totality of

these circumstances dictated that it should not defer to

the DOE’s belated interpretation of “property” or allow

the DOE to enforce that interpretation against petition-

ers for the period prior to the August 1976 amendment

to the “property” definition. Jd. at 48a-49a.

12. On appeal, the Temporary Emergency Court of

Appeals (“TECA”’) reversed the district court’s grant of

summary judgment to petitioners and directed that

summary judgment be entered for the DOE. App.

B. In its opinion, the court first recalled its earlier hold-

ings that “‘[t]he focus of the “property” definition is

upon the “right to produce,” not the fee or leasehold na-

ture of the ownership interest.’”” App. A at 14a. It then

acknowledged that the DOE could “rationally” have relied

on “concepts of state regulation in clarifying the mean-

ing of the ‘right to produce.’” Jd. at 15a. Nevertheless, it

upheld the DOE's August 1976 interpretation that “the

lease defines the property” on the sole ground that that

interpretation was also “reasonable.” Id. at 14a, 18a. In

doing so, it effectively ignored the “right to produce” lan-

13

guage in the “property” definition, concentrating instead

on the “fee or leasehold” aspect of that definition.

TECA then attempted to distinguish this case from its

earlier decision in Grigsby v. Dep’t of Energy, 585 F.2d

1069, modified on rehearing, 585 F.2d 1080 (Temp.

Emer. Ct. App. 1978), cert. denied, 440 U.S. 908 (1979).

In Grigsby, TECA had analyzed the “right to produce”

concept and had concluded that an order of the Louisiana

Office of Conservation establishing a single “unit” out of

parts of several leases created a new “right to produce”

and, therefore, a new “property.” 585 F.2d at 1083, 1085.

Here, TECA sought to distinguish Grigsby on the ground

that production from several reservoir-wide LOC units

lying within a single lease could not be “gerrymandered”

where the lease defines the “property,” whereas produc-

tion from a single unit composed of parts of several

leases, as in Grigsby, could be “gerrymandered” if each

lease were considered a “property.” TECA concluded that

in Grigsby, therefore, the DOE was justified in “depart-

[ing] from its general position that the lease defines the

property” whereas the DOE had “no reason” to do so

here. App. A at 17a, 18a. TECA did not explain how

the fundamental “right to produce” concept supports such

a distinction.

TECA then rejected, without independent analysis, the

district court’s determination that the DOE’s belated, in-

consistent “property” interpretation did not merit judi-

cial deference. Jd. at 18a. In so ruling, TECA ignored

the criteria for deference established by this Court in

Skidmore v. Swift & Co., 328 U.S. 184 (1944). Thus,

TECA deferred to the DOE’s interpretation without dis-

puting the district court’s findings that petitioners’ inter-

pretation was consistent with the regulatory objectives of

the price control system and that the DOE’s August 1976

interpretation was inconsistent with its earlier pronounce-

ments and was not apparent to the industry—or even to

the agency—during the period it purports to control. See

14

App. E at 48a-49a. Instead, TECA noted that the DOE

had consistently maintained that separate reservoirs in

and of themselves are not separate “properties,” but

failed to apprehend that that position of the DOE is not

at issue in this case. See App. A at 15a. In addition,

TECA stated—incorrectly and without record support—

that petitioners had never sought agency guidance as to

the “property” definition. Id. at 20a.

Moreover, TECA not only vacated the district court’s

order granting summary judgment to petitioners, but di-

rected the district court to enter summary judgment for

the DOE, App. B, even though the DOE had not re-

quested summary judgment or made a record to support

such relief and, in fact, had insisted that material issues

of fact were in dispute and required resolution. This sua

sponte grant of summary judgment for the DOE denied

petitioners a full hearing on issues that bear on the

agency’s claim against Texaco for nearly one billion dol-

lars, perhaps the largest claim ever made by a federal

agency against a single regulated party.

REASONS FOR ALLOWING THE WRIT

“Property,” the most fundamental concept of the fed-

eral program governing the pricing of domestic crude oil,

has been left in unconscionable confusion by the decision

below. In three decisions—by three different panels com-

posed of nine different judges—the Temporary Emer-

gency Court of Appeals has produced diametrically op-

posed and irreconcilable interpretations of “property.” In

the first, the court ruled that a Louisiana Office of Con-

servation production unit constituted a “property” be-

cause the focus of the definition was on “the right to

produce,” not the lease, and “such a ‘right to produce’ is

controlled, limited, or extended by contractual agreement

and state authorities.” Grigsby, 585 F.2d at 1088. In

the second, the court confirmed that focus on the “right

to produce” as a matter of principle, holding that “prop-

erty” meant something “obviously quite different” from

15

a “lease or fee interest.” Pennzoil Co. v. Dep’t of Energy,

680 F.2d 156, 168 (Temp. Emer. Ct. App. 1982). How-

ever, in the third—the decision below—the court inexplica-

bly deferred to a belated agency interpretation that the

focus of the definition was the “lease or fee interest” and

thus that Louisiana production units did not define “prop-

erties.” In so doing, the court ignored its own precedents,

thereby creating a conflicting and inconsistent rule within

the judicial body having exclusive jurisdiction to review

the administration of this important regulatory program.

The court abdicated its responsibility of judicial review

in reaching this extraordinary conclusion. The court de-

ferred to the agency’s belated view on the sole ground

that it was “reasonable.” It failed to consider those fac-

tors which this Court held in Skidmore determine whether

deference should be accorded to an agency interpretation.

It never focused on the timing of the agency interpreta-

tion, even though that interpretation was issued fully

three years after the definition itself and at the end of

the period involved in this case. It never focused on the

consistency or inconsistency of the agency interpretation

with earlier agency pronouncements, even though the

agency position was an abrupt departure from the agen-

cy’s earlier pronouncements. And it never focused upon

the thoroughness of the agency’s consideration or the

validity of its reasoning, even though that court itself

had twice interpreted the definition in a directly contrary

way and even though senior agency officials had admitted

to Congress that the meaning of the definition had never

been clear to the agency i self.

The result is not only gross injustice to petitioners, who

are penalized for failing to predict in 1973 the agency’s

change of position in 1976 and from whom the DOE con-

sequently seeks almost one billion dollars, but also con-

fusion and uncertainty generally in other judicial and

administrative cases involving billions of dollars in al-

leged overcharges in the sale of crude oil. Similar con-

16

fusion and uncertainty is now a serious threat in the ad-

ministration of the Crude Oil Windfall Profit Tax Act as

well.

1. The meaning of “property” is an important ques-

tion of federal law. Under the crude oil pricing regula-

tions, “the definition of the term ‘property’ was of funda-

mental importance.” App. A at 4a. In fact, “the prop-

erty concept” was “the basic building block of the two-

tier system for pricing old and new oil.” Jd. at 14a.

Although the petroleum price controls have been termi-

nated,’ numerous lawsuits and administrative proceed-

ings involving the interpretation and application of the

regulations implementing those controls persist. At stake

in these lawsuits and proceedings are claims of crude oil

pricing overcharges totalling in the billions of dollars."

It can be expected that those administrative proceedings

that result in determinations adverse to producers will

eventually be challenged in the federal courts. Since the

meaning and application of “property” is at issue in most

of these cases and proceedings, the question at issue here

as to the correct interpretation of that term is likely to

consume a considerable amount of administrative and

judicial energy and resources for years to come,

Moreover, “property” is an equally critical concept un-

der the Crude Oil Windfall Profit Tax Act, P.L. 96-223."

7 Executive Order 12287, 46 Fed. Reg. 9909 (January 30, 1981).

8 For example, on the same day that the DOE issued its Proposed

Remedial Order against Texaco, it issued PROs against six other

major crude oil producers. In total, the DOE charged these seven

producers alone with having overcharged their customers by $1.7

billion. Most of these overcharge claims continue to be litigated

before the DOE’s Office of Hearings and Appeals.

%In Ptasynski v. United States, 560 F.Supp. 549 (D. Wyo, 1982),

the United States District Court for the District of Wyoming held

the Windfall Profit Tax Act to be violative of the uniformity

clause of the United States Constitution, art. 1, § 8, cl. 1. However,

the court ordered that the tax continue to be collected until a higher

court has passed upon the correctness of its decision.

17

Under that Act, crude oil production is classified into

“tiers” that determine both th. rate of tax and the incre-

ment of profit that is subject to the tax. Aside from

stripper well (“tier 2”) production, oil is classified as

“tier 1” or “tier 3” oil depending upon whether it is

produced from a “property” from which there was com-

mercial production in calendar year 1978. The United

States General Accounting Office (“GAO”) has stated

that “[t}he basic determinant of the windfall profit tax

rate is ‘property,’ a concept which the act incorporates by

reference to Department of Energy regulations.” '’

As the GAO recognized, Congress, when it passed the

Windfall Profit Tax Act, anticipated that for purposes of

the tax, “property” would have “[glenerally . . . the

same meaning as that term is given by the [crude oil]

price control regulations.” S.Rep. No. 394, 96th Cong.,

Ist Sess. 52 (1979), reprinted in 1980 U.S, Code Cong. &

Ad, News 410, 461. Indeed, the Internal Revenue Service

(“IRS”), the agency that administers the windfall profit

tax program, has promulgated a “property” definition

that incorporates the “right to produce” language of the

price control definition, 26 C.F.R. § 150.4996-1(i) (1),

47 Fed. Reg. 50858 (November 10, 1982). The IRS has

indicated that when it publishes rules relating to the

“property” treatment of “separate properties subject to a

single right to produce” and to “unitizations,” it “will

generally follow the rules set forth in FEA Rul. 1977-1,

42 FR 3682 [1977], and FEA Rul. 1977-2, 42 FR 4409

[1977].” 47 Fed. Reg. at 50858.

Thus, it is important not only to current and future

cases under the price control regulations, but also to

proper administration of and compliance with the wind-

fall profit tax system, that questions concerning the cor-

rect meaning and application of “property” be resolved

clearly, definitively and coherently.

10 U.S, General Accounting Office, Uncertainties Aout The Defi-

nition And Scope Of The Property Concept May Reance Windfall

Profit Tax Revenues, GAO/GGD 82-48, May 13, 1982, ai 1.

18

2. The Temporary Emergency Court of Appeals has

confused rather than clarified the meaning of “property.”

In 1971, when Congress amended the Economic Stabiliza-

tion Act, it created TECA and gave it exclusive jurisdic-

tion over all appeals in cases and controversies arising

under that Act and the regulations issued thereunder.

See Section 211(b) of the ESA, 12 U.S.C. § 1904 note. It

did so “{i]n order to funnel into one court all the ap-

peals ... and thus gain in consistency of decision,” and to

“insur[e] prompt and consistent adjudication of all ap-

peals from the district courts. .. .” S. Rep. No. 507,

92d Cong., 1st Sess, reprinted in 1971 U.S. Code Cong. &

Ad. News 22838, 2292, 2298. However, in dealing with

the most fundamental concept of the crude oil pricing sys-

tem, the “property” definition, TECA has not provided

the “consistency of decision” that Congress required of

it. Since no other court of appeals has concurrent juris-

diction to interpret that regulation, only this Court can

provide the consistency and clarity that TECA’s deci-

sions lack,"

Three entirely different TECA panels have rendered

three major decisions on the meaning of the “property”

definition.” In the first such decision, Grigsby v. Dep't

of Energy, TECA focused on the actual language of the

definition and concluded:

1! Because TECA has exclusive appellate jurisdiction over cases

arising under the price control regulations, there will be no conflict

among the courts of appeals on this issue. However, as shown infra,

there is a conflict among decisions of TECA on the meaning of

“property.”

12 Unlike other specialized courts such as the Tax Court or the

Court of International Trade, TECA is not composed of judges

whose primary responsibility is to sit on that court. Rather, TECA

is composed of judges of the United States district courts and

courts of appeals who are designated by the Chief Justice of the

United States from time to time to serve on that court. See Section

211(b)(1) of the ESA, 12 U.S.C. § 1904 note.

19

The focus of the “property” definition is upon the

“right to produce,” not the fee or leasehold nature

of the ownership interest.

585 F.2d at 1088. The court’s conclusion was consistent

with the DOE’s first interpretation of the definition, an-

nounced in Ruling 1975-15, that the “property concept

[is] based upon the right to produce crude oil, ... .”

and that “[f]or purposes of the price regulations then, the

property concept is one that identifies the right to produce

crude oil... .” 40 Fed. Reg. at 40832 (emphasis origi-

nal).

The court then independently analyzed the meaning of

“right to produce” as a concept of general applicability.

It determined:

The “right to produce” arises from a combination of

sources, including, but not limited to, the nature of

the ownership interest, contractual extension or re-

striction of ownership interest, and orders of state

regulatory agencies.

585 F.2d at 1088 (emphasis added).

The panel in Grigsby was particularly conscious of the

role played by the acts of the sovereign states—in that

case, as in this, Louisiana—in determining the “right to

produce” :

A mineral fee owner has a “right to produce” subject

to state law, A mineral leasehold owner has a “right

to produce” subject to the terms of the lease and

state law. . . . Although the fee or leasehold interest

may be the origin of the “right to produce,” such a

“right to produce” is controlled, limited, or extended

by contractual agreement and state authorities.

Id. (emphasis added).

In Grigsby, TECA gave careful consideration to the

effect on the “right to produce” of an order of the Louisi-

ana Office of Conservation establishing a crude oil pro-

duction unit. TECA held that the order that established

the unit created a “property.” Jd. at 1084-85. That order

was issued by the same body whose orders establish and

recognize the units here at issue and control, limit or

modify the “right to produce” in Louisiana, In holding

the order to have established a “property,” TECA relied

not on any interpretation or ruling of the DOE, but on

its own interpretation of the actual words of the defini-

tion itself,

TECA’s next considered analysis of the “property” con-

cept came in Penngoil Jo, v, Dep't of Energy, issued in

April 1982, In that case, the panel focused, as had the

panel in Grigsby, on the actual language of the definition

and concluded;

The statement of the definition that “property means

the right which arises from a lease or fee interest

to produce crude petroleum” is obviously quite dif-

ferent in meaning than if the regulation had pro-

vided that “property means a lease or fee interest

producing erude oil,” As Grigsby points out, “[t)he

focus of the ‘property’ definition is upon the ‘right

to produce,’ not the fee or leasehold nature of the

ownership interest.” 585 F.2d at 1083,

680 F.2d at 168 (emphasis added), On this basis, the

court rejected the argument that, in the context of a

production unit formed out of parts of several leases, the

leases constituted the “properties,” Jd,

In Pennzoil, TECA noted that its decision in Grigaby

was dictated not by any DOE interpretation, but by “the

mandate of the property definition itself.” Jd, at 178,

Further, it found that “the controlling concept of Ruling

1975-15 [that the ‘right to produce’ rather than the own-

ership interest determines the ‘property’| was implicit in

the regulatory definition of ‘property, ’....” /d at 170,

Accordingly, TECA upheld Ruling 1975-15 on the basis

of the language of the “property” definition, Jd, at 179.

Thus, in Grigsby and Penngoil, TECA developed out

of the regulatory definition of “property” the clear and

“controlling concept” that the “right to produce,” which

defines the “property,” may originate with the lease or

21

fee interest, but may be further defined by contractual

agreement or orders of state regulatory authorities, In

8o doing, it introduced order and coherence into an area

which, under the DOE’s administration, had been marked

by confusion and uncertainty,

TECA’s decision in the instant case, its third major

“property” case, marked the return of confusion to this

area of the law. Promisingly enough, the court began its

opinion by acknowledging its earlier line of decision:

Although the words “lease” and “fee” appear in the

definition, the parties agree, and this court has held,

that: “The focus of the ‘property’ definition is upon

the ‘right to produce,’ not the fee or leasehold nature

of the ownership interest,” [Citing Grigsby],

App. A at 14a, However, rather than looking to its own

decisions as precedents or undertaking an independent

analysis, TECA chose simply to defer to the DOE's Au-

gust 1976 “finding” that

“the literal meaning of the term ‘property’... is

generally to be understood as synonymous with the

hysical ‘tract’ or ‘premises’ as to which a working

nterest is established by an oil and gas lease, or by

a fee interest”... “[{T]here should have been no

doubt but that CLC intended by its definition of

property to signify the premises described by an

oil and gas lease” as the property in the vast major-

ity of instances,"

Id, at 15a (citations omitted), Following the DOER’s

lead rather than its own, the court refused to recognize as

being within the “property” definition any “rights to pro-

The DOE's statement that “there should have been no doubt”

as to the meaning of “property” ja incomprehensible in light of

both the admiasion of the FEA's Deputy Administrator that the

meaning was unclear to the agency itself and the DOE's own con-

clusion in April 1976 that LOC units could be “properties” under

the original definition,

duce” other than leases, fee interests and those expressly

approved in Ruling 1975-15, Jd, at 17a, 18a,

The court made no effort to reconcile its decision with

its analysis in Grigaby that other sources of the “right to

produce,” such as “orders of state regulatory agencies,”

determine “properties,” See Grigsby, 585 F.2d at 1083,

Nor did the court even attempt to explain how the “right

to produce” concept entailed that the Louisiana produc-

tion units at issue in Grigsby were “properties” while

those at issue here were not, Indeed, the court completely

ignored the essential fact that in Grigaby, it found the

“right to produce” in the LOC order that established the

unit there at issue, Instead, the court gave absolutely no

weight to the fact that the producing entities that peti-

tioners sought to have declared “properties” in this case

are products of the same State regulatory system and

are established and recognized by the same State agency

as the unit involved in Grigsby, Viewed from the per-

spective of the “right to produce,” the units are indis-

tinguishable,

By holding in Grigsby and Penngoil that the “right to

produce” is “obviously quite different in meaning than”

the lease or fee interest, while, in the instant case, up-

holding the DOE’s “general position that the lease defines

the property,” TECA has once again created tremendous

confusion as to the meaning of “property.” It is a given

that the “right to produce” defines the “property.” Yet

TECA has no coherent concept of that right. In particu-

lar, various panels of that court have held that “orders

of state regulatory authorities” do—and do not-—define

the “right to produce.” These contradictory holdings rep-

resent a signal failure by that court to fulfill its mandate

to provide “consistency of decision,.”” Moreover, by refus-

ing to rehear this case en bane, TECA has demonstrated

that it will not reconcile its divergent decisions, See App.

C, Because TECA is unwilling—or unable—to provide

a clear and coherent understanding of the fundamental

concept of “property,” this Court should,

8. The Temporary Emergency Court of Appeals’ uncrit-

ical acceptance of the DOE's general “lease defines the prop-

erty” interpretation has denied petitioners their right to

meaningful judicial review, TECA deferred, without anal-

ysis, to the DOE’s “general position that the lease defines

the property” on the sole ground that it found that position

to be “reasonable.” See App, A at 14a. In so doing, that

court ignored the language of the definition whose inter-

pretation was at issue, It ignored the prior inconsistent

agency interpretations of that definition. It ignored the

district court’s findings that the DOE itself was confused

as to the meaning of “property” and that the definition ‘t-

self gave producers “no clue whatsoever” that reservoir-

wide LOC units could not be treated as “properties.” See

App. E at 49a, 50a, It ignored the district court’s finding

that the treatment of reservoir-wide LOC units as “prop-

erties” was consistent with the objectives of the price con-

trol program. See id, at 48a, And it assigned no impor-

tance to the fact that the units involved in this case are

established and recognized by the official act of a sover-

eign state, petitioner Louisiana.

The approach of the court below to judicial deference

to agency interpretations offends even the accommodating

standards of this Court’s decision in Skidmore. In Skid-

more, this Court, unlike TECA, recognized that deference

to agency interpretations is not an absolute rule. 323

U.S. at 140, Accord, Chrysler Corp. v. Brown, 441 U.S.

281, 315 (1979). Rather, this Court held that the defer-

ence to be accorded an agency’s interpretation depends

on an analysis of “the thoroughness evident in its con-

sideration, the validity of its reasoning, its consistency

with earlier and later pronouncements, and all those

factors which give it power to persuade, if lacking power

to control.” Skidmore, 828 U.S. at 140. Accord, General

Electric Co, v. Gilbert, 429 U.S. 125, 141-42 (1976).

TECA has subverted this standard by substituting def-

erence for analysis, requiring nothing of the agency other

than its ipse diwvit, It has ignored this Court’s admoni-

tion that “(t]he deference owed to an [administrative

24

agency] .. . cannot be allowed to slip into judicial in-

ertia. .. .” Volkswagenwerk v. Fed. Maritime Comm'n,

390 U.S. 261, 272 (1968), quoting American Ship Build-

ing Co. v. NLRB, 380 U.S. 300, 318 (1965).

The considerable amount of time that passed before

the DOE adopted the “property” interpretation at issue

makes TECA’s deference to that interpretation partic-

ularly inappropriate in this case. Deference is to be

“based on such factors as the timing and consistency

of the agency’s position, ... .” Chrysler Corp., 441

U.S. at 315; Batterton v. Francis, 432 U.S. 416, 425

n.9 (1977). Here, TECA had before it an interpre-

tation issued fully three years after the definition

was announced and had to be applied; one year after

the DOE first announced that the focus of the definition

is on the “right to produce”; and only four months after

the DOE indicated that it had not yet made up its mind

as to the meaning of “property” and concluded that the

very types of units at issue here were probably “proper-

“tes.” As the district court found:

The DOE, itself, admitted in its hearings before a

Congressional subcommittee that the property defini-

tion was ambiguous and unclear and that the mean-

ing had not been clear to the agency. .. . Further,

the DOE did not decide upon or publicly announce

its interpretation of the property definition until the

end of the relevant period; i.e., until August, 1976.

App. E at 49a. Nonetheless, TECA found the interpreta-

tion to be “reasonable,” and commented that there was no

justification for petitioners to have thought otherwise.

App. A at 14a, 20a. In short, TECA has held petitioners

to a higher standard of knowledge than it has the agency.

This perverse result is made even worse by the fact

that between the time of the DOE’s interpretation and

the time of the decision below, TECA decided Grigsby and

Pennzoil. As shown, the holding of those cases with re-

spect to the “right to produce” cannot be reconciled with

the “lease defines the property” interpretation that the

25

DOE announced in August 1976 and that the court up-

held in this case. It affronts the doctrine of judicial re-

view for a reviewing court to give unquestioning defer-

ence to an agency interpretation that conflicts not only

with the agency’s own prior pronouncements, but with

the prior interpretations of that court itself. Such a

blatant failure to review, particularly in a case involving

an issue of great importance and claims of nearly one

billion dollars, should be corrected.

Congress has condemned the practice of uncritical def-

erence by the courts it has charged with the responsibility

to review agency action. The United States Senate has

passed, and the House Judiciary Committee has favor-

ably reported out, regulatory reform legislation amend-

ing, inter alia, the judicial review provision of the Admin-

istrative Procedure Act, 5 U.S.C. § 706(c).'* The Senate

version provides, in relevant part:

In making determinations on other [i.e., nonjuris-

dictional] questions of law, the court shall not ac-

cord any presumption in favor of or against agency

action, but in reaching its independent judgment con-

cerning an agency’s interpretation of a statutory

provision, the court shall give the agency interpreta-

tion such weight as it warrants, taking into account

the discretionary authority provided to the agency

by law.

S. 1080, 97th Cong., 2d Sess. §5(b) (1982). This provi-

sion is intended to reinstate the primacy of the standards

for review established by this Court in Skidmore. In its

report on this bill, the Senate Judiciary Committee

deplored “certain instances” in which the doctrine of def-

erence “is applied as a virtual presumption of correctness

14§,1080, 97th Cong., 2d Sess., 128 Cong. Rec. S27138-21 (daily

ed., March 24, 1982); H.R. 746, 97th Cong., Ist Sess., 127 Cong. Ree.

H73 (daily ed., January 6, 1981); H.R. Rep. No. 435, 97th Cong.,

2d Sess. (1982) (report of House Comm. on Judiciary).

26

of all interpretations of law by an agency.” Rather, it

stated,

in examining an agency interpretation of law, the

court should evaluate “the thoroughness exhibited

[sic] in [the agency’s] consideration, the validity of

its reasoning, its consistency with earlier and later

pronouncements, and all those factors which give it

power to persuade, if lacking power to control.”

Skidmore v. Swift & Co, 323 U.S. 134, 140 (1944).

The court should also weigh any countervailing fac-

tors bearing on the validity of the agency’s legal

position.

Accordingly, under this amendment, a_ reviewing

court may not proceed on the assumption that it

should uphold an agency’s statutory construction

merely because that construction is not unreasonable

or not irrational.

S. Rep. No. 284, 97th Cong., 1st Sess. 165, 170, 171

(1981).

This Court should not tolerate such an abdication of

the duty to review as manifested by TECA in this case.

As TECA itself has acknowledged, “the final power of in-

terpretation is in the courts.” Energy Reserves Group,

Inc. Vv. Dep’t of Energy, 589 F.2d 1082, 1093 (Temp.

Emer. Ct. App. 1978), quoting Davis, Administrative Law

Of The Seventies § 5.03-1 at 152 (1976). As the only

Court supervising TECA’s review of important economic

legislation and regulation, this Court should require at

least a reasoned and coherent analysis. Such supervision

is particularly appropriate in this case, which presents

the opportunity to clarify the meaning of the most funda-

mental principle of those regulations, “property.”

27

CONCLUSION

For the foregoing reasons, petitioners respectfully re-

quest that the writ of certiorari be allowed.

Respectfully submitted,

/s/ Allan Abbot Tuttle —

ALLAN ABBOT TUTTLE

Counsel of Record

JAMES R. PATTON, JR,

GEORGE M. BORABABY

PATTON, Boccs & BLOow

2550 M Street, N.W.

Washington, D.C. 20037

(202) 457-6000

Attorneys for Petitioner

State of Louisiana

ANDREW J. KIRKPATRICK, JR.

WILLIAM O. LAMorTe, III

RICHARD D. ALLEN

Morris, NICHOLS, ARSHT & TUNNELL

Twelfth & Market Streets

P.O. Box 1347

Wilmington, Delaware 19899

(302) 658-9200

Attorneys for Petitioner

Texaco Inc,

JOHN R. Cope

THOMAS D. MANForp, III

Darci L. Rock

BRACEWELL & PATTERSON

1825 I Street, N.W.

Washington, D.C. 20006

(202) 828-5800

Attorneys for Petitioner The

Louisiana Land And Exploration

Company

December 23, 1982

28

THE HONORABLE David C, TREEN

Governor, State of Louisiana

THE HONORABLE WILLIAM J. GUSTE, JR.

Attorney General, State of Louisiana

THE HONORABLE FRANK P. SIMONEAUX

Secretary, Department of Natural

Resources, State of Louisiana

THE HONORABLE PATRICK H. MARTIN

Commissioner of Conservation,

State of Louisiana

Harry E, BARSH, JR.

Davip R. FROHN

CAMP, CARMOUCHE, PALMER, BARSH

& HUNTER

A Professional Law Corporation

P. O. Drawer 2001

Lake Charles, Louisiana 70602

(318) 433-9355

Of Counsel for Petitioner

State of Louisiana

STEPHEN H. Barb

Texaco Inc,

2000 Westchester Avenue

White Plains, New York 10650

(914) 253-4000

PATRICK T. CAFFERY

CAEFERY, OUBRE, GIBBENS & BLACKWELL

420 Iberia Street

New Iberia, Louisiana 70560

(318) 364-1816

Of Counsel for Petitioner

Texaco Inc,

J. HENRY PHILLIPS, IIT

CHARLES D. MARSHALL, JR.

MILLING, BENSON, WoopWARD, HILLYER,

PIERSON & MILLER

Eleventh Floor

Whitney Building

New Orleans, Louisiana 70130

(5604) 581-3333

Of Counsel for Petitioner The

Louisiana Land And Exploration

Company