Appendix — Energy Reserves Group, Inc. v. Department of Energy

Office - Supreme Court. US |

FILED

84-188 AUG 2 1984

No. 84- 3

ALEXANDER L. STEVAS.

Sj K

IN THE

Supreme Court of the United States

OCTOBER TERM, 1984

en tlle

ENERGY RESERVES GROUP, INC., et al.,

Petitioners,

Vo

DEPARTMENT OF ENERGY, et ai.,

Respondents.

APPENDIX TO

PETITION FOR A WRIT OF CERTIORARI TO THE

TEMPORARY EMERGENCY COURT OF APPEALS

OF THE UNITED STATES

M. W. PARSE, JR. WARREN M. CHRISTOPHER *

KEITH A. JONES RICHARD C. WARMER

J.B. RUHL CARL R. SCHENKER, JR.

FULBRIGHT & JAWORSKI AARON S. BAYER

1150 Connecticut Avenue, N.W. JAcoB M. LEwIs

Washington, D.C. 20036 O’MELVENY & MYERS

(292) 452-6860 1800 M Street, N.W.

Washington, D.C. 20036

(202) 457-5300

* Counsel of Record

Other counsel for petitioners are listed on the inside front cover.

EERE IE TC I AE IIE I ITT SI TI IT ITE. CT EEE LET EATERS T SOLA EIO DN ANG Bes dt

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

Q>

a

EDWARD DE LA GARZA JOSEPH W. KENNEDY

EXXON CORPORATION MorkIs, LAING, EVANS, ’

P.O. Box 2180 Brock & KENNEDY

Houston, Texas 77001 200 West Douglas

R. Bruce MCLEAN, P.C. Wichita, Kansas 67202

DANIEL JOSEPH, P.C.

DAVID HOLZWORTH

AKIN, GUMP, STRAUSS,

HAUF”: & FELD

1333 New Hampshire Avenue, N.W.

Suite 400

Washington, D.C. 20086

WILLIAM C. STREETS

MARK J. ForscH

GAIL F. SCHULZ

MOBIL OIL CORPORATION

3225 Gallows Road

Fairfax, Virginia 22037

TABLE OF CONTENTS OF APPENDIX

Appendix A appears following the petition.

Appendices B through J are separately bound.

APPENDIX A— Opinion and Judgment of the Tempo-

rary Emergency Court of Appeals of

the United States in Exxon Corp. v.

United States Department of Energy,

Nos. 5-103 & 10-51 (TECA July 6,

sae reas: Saeki tibolnamnasaniaeanins

APPENDIX B— Opinion and Order Certifying Con-

stitutional Questions of the United

States District Court for the North-

ern District of Texas in Dorchester

Gas Producing Co. v. United States

Department of Energy, 4 Energy

Mgmt. (CCH) {| 26,464 (N.D. Tex.

Nov. 23 and Dec. 21, 1983) ...............

APPENDIX C— Opinion and Order (+rtifying Con-

stitutional Questions of the United

States District Court for the District

of Kansas in In re Department of

Energy Stripper Well Exemption

Litigation, 578 F. Supp. 586 (D.

=. BRR

APPENDIX D— Energy Reserves Group, Inc. v. FEA,

No. 77-1146 (D. Kan. June 10, 1977)

(order granting preliminary injunc-

a iene

APPENDIX E— Opinion of the Temporary Emer-

gency Court of Appeals of the United

States in Gulf Oil Corp. v. Dyke, 734

F.2d 797 (TECA 1984) .....................

APPENDIX F— Constitutional Provisions .................

Page

la

4la

63a

94a

ii

TABLE OF CONTENTS OF APPENDIX—Continued

APPENDIX G—

APPENDIX H—

APPENDIX I—

GUID cccisncsscecncibsiabimiaticianeinamiecdiin

Economic Stabilization Act of 1970,

12 U.S.C. § 1904 note (1976), § 211..

Emergency Petroleum Allocation Act

of 1973, Pub. L. No. 93-159; 87 Stat.

Gr Ge catitach dint ese

Emergency Petroleum Allocation Act

Extension, Pub. L. No. 93-511; 88

| ee eee

Emergency Petroleum Allocation Act

Extension, Pub. L. No. 94-99; 89

OT TE Se ects cetie in

Emergency Petroleum Allocation Act

Extension, Pub. L. No. 94-133; 89

tak: GG. Cae ehiscrernetnc i esicscienn

Energy Policy and Conservation Act,

Pub. L. No. 94-163; 89 Stat. 871

(1975), Title IV and Title V, Part C..

| IR SMe eee

Exemption of Residual Fuel Oil from

the Mandatory Petroleum Allocation

Regulations, 39 Fed. Reg. 24,669

CH FD cnacveisccccichn cng eei ee

Phase-Out of Old Oil Price Ceilings,

40 Fed. Reg. 19,219 (1975) .............

Phase-Out of Old Oil Price Ceilings,

40 Fed. Reg. 30,030 (1975) _...... a2

Revised Program to Phase Out Old

Oil Price Ceilings, 40 Fed. Reg.

SR | RRR pe PLE eee

Materials From the Gerald R. Ford

CEE IIa Ae) Boe

Frank G. Zarb Memorandum to the

President (March 8, 1974) ................

Page

14la

156a

157a

159a

iii

TABLE OF CONTENTS OF APPENDIX—Continued

APPENDIX J—

Frank G. Zarb Memorandum to the

President on Petroleum Marketing

Practices Act (June 9, 1976) .............

Frank G. Zarb Memorandum to

the President on Deregulation of

Naphtha-Based Jet Fuel (undated

attachment to Frank G. Zarb Memo-

randum to Elliot Richardson, et al.,

a cals inetincenmntsoanmnnrt

Frank G. Zarb Memorandum to the

President on Gasoline Decontrol

is cdcersiantivinnas nies

Max Friedersdorf Memorandum to

the President (May 1, 1975) ............

White House Press Conference of

Frank G. Zarb and Alan Greenspan

I I i ceiticcinttibnbiiiainnsne

List of Parent Companies, Subsidi-

aries and Affiliates (Except Wholly

Owned) Pursuant to Rule 28.1 ..........

Page

286a

294a

299a

305a

312a

A4la

APPENDIX B

U.S. DISTRICT COURT

FOR THE NORTHERN DISTRICT OF TEXAS

DALLAS DIVISION

Dkt. No. CA-3-75-0836-W (Consolidated )

DORCHESTER GAS PRODUCING COMPANY, et al.

V.

DEPARTMENT OF ENERGY, et al.,

November 23, 1983, and December 21, 1983

Before Woodward, Judge.

Judgment has not been entered in this case but a mem-

orandum opinion was filed on June 24, 1983. Various

motions have since been filed by the plaintiffs. The

court’s opinion of June 24th is referred to and adopted as

a part of this memorandum order except to the extent

that it may be modified or changed herein. All outstand-

ing motions will be disposed of by this memorandum

order.

Briefly, the plaintiffs in this case seek a declaratory

judgment which would in effect nullify certain regula-

tions and interpretations of the defendant and its prede-

cessor agencies and the defendants pray for a declara-

tory judgment upholding these same regulations and in-

terpretations.

BACKGROUND

Under the authority of the Emergency Petroleum Al-

location Act (EPAA) 15 U.S.C. §§ 751 et seq., the FEA

42a

promulgated Subpart E which controlled the price re-

finers could charge for certain petroleum products, in-

cluding NGLs. Natural gas processors were held to be

“refiners” and ‘thus subject to Subpart E. National

Helium Corp. 1 FEA, 569 F.2d 1137, 1145 (TECA

1977). The Subpart E regulations, however, were better

suited for crude oil refiners, and in 1974 the FEA pro-

posed Subpart K regulations specifically applicable to nat-

ural gas processors. Subpart K became effec-ive J anuary

1, 1975.

Both parties (by cross motions for summary judg-

ment) seek to have their methods for calculating the in-

creased costs of natural gas from which NGLs are ex-

tracted declared reasonable and the methods of the

opposing party declared unreasonable.

In its previous memorandum, the court essentially held

that the regulations and interpretations of the Depart-

ment of Energy (DOE) were proper and, with the ex-

ception of the ethane exclusion, the court denied plain-

tiff’s motion for summary judgment and gronted the

cross motion for summary judgment filed by the defend-

ant. The various motions subsequently filed by plaintiffs

generally assert the following:

(1) Though the court held the transfer-pricing

method unreasonable under Subpart E, given the

ambiguity of the regulation, plaintiffs’ alternative

“incremental” method should be held reasonable.

(2) Under the recent Supreme Court decision the

promulgation of Subpart K was arbitrary and capri-

cious since DOE failed to consider fixed-quantity

contracts.

(3) The court misread or overlooked various

agency interpretations.

(4) The inclusion of the fixed-quantity contract

price in the weighted average cost of shrinkage is an

unreasonable interpretation of Subpart K in that

43a

there was no revenue loss attributable to the fixed-

quantity contracts.

(5) The underlying Acts, the EPAA and EPCA,

are invalid (under the Chadha decision) because

they both contain one-house veto provisions.

Because this case covers two distinct regulatory pe-

riods, it is necessary to briefly outline the methods actu-

ally used by the plaintiffs during the relevant periods.

Subpart E was in effect from late 1973 through 1974 and

Subpart K became effective January 1, 1975.

TEXACO

During Subpart E period and until 1976, Texaco used

a transfer pricing method of calculating increased costs.

During 1976 and early 1977, Texaco used the weighted

average method of calculating cost of shrinkage now ad-

vocated by DOE. During this latest period, Texaco com-

puted the weighted average by using the sale price for all

contracts from the sale of gas from its processing plant,

including fixed-quantity contracts and contracts for the

sale of surplus gas.! In May 1977, Texaco began using

its so-called “incremental method”; that is, Texaco calcu-

lated shrinkage costs based on surplus contract prices,

excluding from the calculation the price received under

the fixed-quantity contracts. Affidavit of B.B. Fox in

Support of Texaco Inc.’s Motion for New Trial, page 2.

In December 1978, Texaco refiled to claim increased costs

for the period prior to May 1977 to reflect costs computed

pursuant to the incremental method.’ Counsel for Tex-

aco at the October 25, 1983 hearing stated that the re

filings were “accepted by DOE.”

1 Argument of counsel for Texaco at the October 25, 1983 hearing

in Abilene, Texas.

2 Counsel for Texaco and the letter from Texaco’s Comptroller

to Mr. Richard Anderfuren state thar Texaco refiled in December

1978. The Affidavit of B.B. Fox, however, states that Texaco refiled

in October 1979.

44a

EXXON

Plaintiff Exxon passed through no increased costs for

NGLs during August, September, and October 1978.

During the period November 1973 through March 1974,

Exxon computed increased costs under a formula per-

mitted for old crude oil. See Exxon’s Supplemental An-

swers to Defendant’s First Set of Consolidated Inter-

rogatories and Request for Producticn of Documents filed

April 1, 1982. In April 1974, Exxon again changed

methods and until December 1974, utilized a transfer

pricing method, based on its historical system of account-

ing. This formula utilized the Exxon posted prices for

propane and motor gasoline. Exxon re-filed, seeking to

make this transfer pricing method effective as of Novem-

ber 1973. Id. During Subpart K, Exxon employed its

incremental method of calculating shrinkage.

MOBIL

Plaintiff Mobil initially challenged the regulatory con-

trol of NGLs under Subpart E, lost this suit, and then

refiled and used what is in effect the incremental method.

Mobil Oil Corp. v. F.E.A., 566 F.2d 87 (TECA 1977).

The court in Mobil affirmed the holding of the district

court that the FEA has authority “to regulate the al-

location and pricing of all liquid petroleum products re-

covered from the ‘wet’ natural gas streams, including

condensate, natural gas liquids and natural gas liquid

products recovered at gas processing plants (propane,

butane, and natural gasoline except ethane).” 566 F.2d

87 (TECA 1977). Mobil, during both the Subparts E

and K periods, sold processed gas under five fixed vol-

ume contracts and sold the remainder under a sixth con-

tract to Channel Industries. The parties disagree over

the characterization of the Channel Industries contract

as a “surplus” contract. The Channel contract did in

fact contain a maximum volume limit term, but that

limit was exceeded only once. In calculating its increased

/

i

45a

costs, Mobil used only the prices received from the Chan-

nel Industries contract and ignored the fixed-quantity

contracts.

REFILING PROVISION

Texaco and Exxon claim the above to be the methods

they “actually used” by virtue of resubmitting monthly

reports.

Section 212.126(b) of the DOE Mandatory Petroleum

Price Regulations (10 C.F.R. § 212.126(b), 39 Fed. Reg.

1961, January 15, 1974) requires that refiners

. Shall prepare and file with the FEO periodic

reports in accordance with forms and instructions

issued by FEO. Each refiner shall submit its ecal-

culations under the formulas of § 212.83 in accord-

ance with the forms and instructions issued by FEO.

Form FEO-96, FEA/DOE P110 and EJA-14 were issued

pursuant to this provision. Both forms P110 and FEO-96

contain the question, “Is this a resubmission?” and a box

to check either “yes” or “no.”’ Neither the forms nor the

regulations define the purpose or scope of the resubmis-

sion procedure.* The forms provided no time limit for

resubmission.

Effective May 1, 1979, the DOE amended § 212.126 to

limit refiling to one year after the original filing except

where expressly authorized by DOE or whe~e written

permission to resubmit or refile is granted for good cause

shown. 44 Fed. Reg. 14534, March 13, 1979, 10 C.F.R.

§ 212.126(d). DOE stated that the purpose of the alloca-

tion reports is to assure compliance with § 212.83 (Sub-

part E).

“We recognize that these reports sometimes re-

quire the use of estimated data and that in dealing

3 Form P110-M-1 Specific Instructions states: “Item (7)—Is this

a resubmission? Answer ‘Yes’ if you are supplying additional in-

formation or are resubmitting a report. In either case, the form

must be completed in its entirety.”

46a

with such calculations some good iaith errors are

unavoidable. However, in order .o more effectively

stabilize cost allocation data for the purpose of fi-

nalizing compliance actions or aud'ts, and to prevent

possible circumvention of the regulations by inappro-

priate use of the resubmission provedure, it is neces-

sary to issue explicit regulatory provisions regard-

ing the time for refiling cost allocation reports by

refiners and the types of revisions which may be

made on the forms.” 44 Fed. Reg. 14535 March 13,

1979.

Though such language might appear to preclude the

use made by Texaco and Exxon of the refiling proce-

dures, the interpretation of the DOE apparently con-

cedes that a resubmission may be made to reflect the re-

finer’s new methodology. When initially proposed, the

amendments contained a sixty-day limit on refiling.

Comments received in response convinced DOE to allow

a full year to refile. One of the criticisms received was

that “any increased allowable costs in a prior period due

to retroactive DOE interpretations, rulings and clarifica-

tion and court decisions could not be automatically re-

ported by a unilateral refiling of an amended cost al-

location form.” Thus, the agency contemplated the use of

the resubmission procedure to retroactively adopt a new

method.

Further, the FEA stated that “While such resubmis-

sions and refilings will be automatically accepted, the ad-

justed data submitted will be subject to verification and

approval.” Id.

SUBPARTS E AND K

The Mandatory Petroleum Pricing Regulations basi-

cally froze the prices of all refined petroleum products at

their May 15, 1973 levels. The regulations specified the

permissible price increases. Subpart E applied to the

sale of refined products by “refiners.”

ee

47a

§ 212.81 Applicability

. . . this subpart applies to each sale of a covered

product which is purchased or refined by a refiner.

§ 212.82 Price Rule

(a) Rule. A refiner may not charge to any class

of purchaser a price in excess of the base price of

that covered product except to the extent permitted

pursuant to the provisions of paragraphs (c)

through (k) of this section.

(b) Price increases. A price in excess of the base

price of an item in a product line may be charged

only to recover on a dollar-for-dollar basis those net

increases in allowable costs that have been incurred

with respect to the product line. . .

(2) ... ‘Allowable costs’ under this section

means non-product costs attributable to refining

operations. . . . (emphasis added)

The “base price” is defined in § 212.82(f) as the May

1973 price plus “increased product costs” incurred be-

tween the month of measurement and the month of

May 1973.*

§ 212.83 prescribes the method of computing the base

price pursuant to § 212.82(f). This section, however,

pertains to the pricing of petroleum products produced

from crude oil, as opposed to natural gas.

§ 212.83 Allocation of refiner’s increased product

costs.

(b) Definitions. For purposes of this section—

‘cost of petroleum product’ means (1) for purposes

4 The May 1973 ceiling price is the weighted average sales price

on May 15, 1973; subsection (f) states that “In computing the

base price, a firm may not exclude any temporary special] sale, deal

or allowances in effect on May 15, 1973.” In other words, the

regulations warned the refiners not to arbitrarily or unjustifiably

maximize their base price calculation.

48a

of domestic petroleum products other than crude

petroleum, the purchase price including transporta-

tion costs... .

‘Increased product costs’ are defined as the in-

crease in the total cost of crude (between the month

of measurement and May 1973) plus the increased

cost of petroleum product.

Under Subpart E, the costs refiners (or processors)

were allowed to pass through were based on their actual

cost of raw materials and refining operation costs.

Where crude oil was a raw material used in producing

a refined product, the regulations allowed the price to

increase considerably. The price of crude was permitted

to rise to this extent because the market price of oil was

rising so astronomically.®

The price of refined products produced from natural

gas, on the other hand, was not allowed to rise as

dramatically; rather, they were effectively limited to

their May 1973 prices. See National Helium Corp. v.

FEA, 569 F.2d 1137, 1148 (TECA 1977), citing Emer-

gency Amendment to Special Propane Rule, 39 Fed. Reg.

28608. The price of a petroleum product therefore de-

pended in part upon the raw material from which it

was produced.

The plaintiffs first argue that, analogizing natural gas

to crude oil, their transfer-pricing is a reasonable method

under Subpart E.

This court has already found the transfer method un-

reasonable. (Memorandum Opinion, page 17.) As stated

before (and as indicated by the regulations cited above),

the intra-firm transfer price was allowed only for im-

ported crude. Further, the Emergency Amendment to the

5 It was in fact the oil embargo that led to the mandatory alloca-

tion and price control of petroleum products in the first place. The

purpose was to keep the prices stable without stifling production.

ee Sere ne

49a

Special Propane Rule explicitly prohibited the calculation

of increased costs of NGLs based on acquisition of nat-

ural gas from an affiliated entity. § 212.83(c> (1) (iii).

The intra-firm transfer price utilized by Exxon referred

to the “posted” price of crude. Though Exxon self-

servingly argues that such a reference price results in

a parity of pricing between products produced from gas

and those produced from crude, the fact is that crude

prices were rising while natural gas prices were not.

Thus Exxon was attributing increased product costs to

NGLs which, contrary to the scheme of Subpart E, had

no basis in reality.

Since Subpart E was geared primarily to crude oil

refiners, many gas processors were left with 1973 prices.

If the processor bought the natural gas he processed,

‘the increased cost based on that purchase price could be

passed through under Subpart E as an increased product

cost. Processors who processed their own natural gas,

however, were denied inter-affiliate transfer prices, and

could only pass through certain increased costs of pro-

duction as increased non-product costs. Since they did

not purchase raw materials, they incurred no actual in-

creased product costs, but rather were effectively limited

to the increased costs of producing the natural gas.

Since the cost of producing natural gas did not increase

significantly during the E period, their prices were effec-

tively frozen at or near 1973 prices.

The FEA recognized the lack of attention given gas

processors in the regulations:

“ec

*

. while natural gas liquids are subject to the

FEA’s mandatory price regulations, increased costs

associated with the production or processing of nat-

ural gas liquids have generally been minimal and

there has been no precise method for passing any

increased costs through in the present regulations.

The FEA is aware of the need for improving its

regulations in this area and will be proposing

50a

amendments for this purpose in the immediate fu-

ture. In the meantime, the amount of increased

product costs which may be passed through by re-

finers is subject to the general principle that such

increased costs are limited to those cost increases

which reflect payment of lawful prices.” 39 Fed.

Reg. 28608, August 9, 1974.

Thus the issue is whether the plaintiffs’ “incremental”

method was a reasonable one under Subpart E in that

it reflected the payment of lawful prices. The FEA per-

mitted the Subpart K shrinkage formula to be applied

retroactively to the E period. 40 Fed. Reg. 10824, Sep-

tember 4, 1975. The plaintiffs’ incremental method will

therefore be discussed in the context of Subpart K, but

the reasonability of the method must be judged in terms

of the two distinct regulatory premises of Subpart E and

Subpart K. This court rejected the plaintiffs’ incre-

mental method during the K period in the original

Memorandum Opinion. The FEA directly addressed the

problem of NGL pricing and the natural gas/crude oil

pricing disparity by enacting Subpart K. While Subpart

E basically allowed the increased price paid by the proc-

essor or refiner for the raw material used in processing,

Subpart K calculated increased costs based on what the

processed gas would have been sold for by the processor

had it not been lost in the extracting process. Under

Subpart K, what the gas would have been sold for is

measured by the contracts in effect.

Subpart E and Subpart K attack the problem of deter-

mining actual increased natural gas (product) costs from

two fundamentally different directions. Subpart E sought

to base the price of the product on the cost of the natural

gas to the processor; Subpart K sought to base the price

on the price for which the processor would have sold that

gas (under existing contracts) had it not been used in

processing NGLs.

5la

In that the purpose of the pricing regulations was

(1) incentive for production of NGLs (2) minimization

of prices, Subpart K’s opportunity methodology struck

the balance more in favor of the incentive to produce.

As set out in the original Memorandum Opinion, the

relevant provisions of Subpart K are sections 162 and

167. 10 C.F.R. § 212.162 defines “cost of shrinkage” as:

[t]he reduction in selling price per thousand cubic

feet (MCF) of natural gas processed, which is at-

tributable to the reduction in volume or BTU value

of the natural gas resulting from the extraction of

natural gas liquids, as determined pursuant te the

contracts in effect at the time for which cost of

natural gas shrinkage is being measured, and under

which the processed natural gas is sold. «emphasis

added)

10 C.F.R. § 212.167(b) defines “Increased product costs”

as

(3) the difference between the weighted average

cost of natural gas shrinkage per thousand cubic feet

(MCF) of natural gas processed in the month of

May 1973, and the weighted average cost of natural

gas shrinkage per thousand cubic feet (MCF) of

natural gas processed in the current month, multi-

plied by the number of thousand cubic feet (MCF’s)

of natural gas processed in the current month.

(emphasis added)

As DOE contends, and the court agreed as the proper

interpretation, Subpart K requires the processor to

weight average all contracts in effect—both fixed-quantity

and surplus—for the sale of residue gas to calculate the

loss resulting from shrinkage. The plaintiffs’ incremental

method would exclude the lower-priced fixed-quantity con-

tracts from that weighted average calculation.

With respect to Subpart E, the use of an opportunity

cost method which excludes the fixed-quantity price, is

52a

unreasonable. Subpart E sought to allow the pass-

through of actual increased costs; the FEA allowed a

reasonable method which would, in effect, reflect the pay-

ment received by the processor in the sale of the proc-

essed gas. The costs at which the processor would have

sold the gas used in processing, only reasonably reflects

actual costs if the fixed-quantity contract price term is

included. An essential fact that the plaintiffs refused to

concede at the October 25th hearing and glossed-over in

their briefs, is that one of the two objectives of the

EPAA was the minimization of the price of petroleum

products. To use only higher price surplus contract terms

in calculating the increase cost of natural gas circum-

vents price control mandated by Subpart E.

With respect to Subpart K, plaintiffs’ incremental

method is also unreasonable.* The Preamble to subpart K

states that “The cost of shrinkage shall be computed

based upon the contractual terms in effect for the sale of

natural gas during the time period for which shrinkage

cost is being measured.” 39 Fed. Reg. 44409, December

24, 1974 (emphasis added). Clearly, the exclusion of the

fixed-quantity contract price was not contemplated by

the regulations, but rather subverts their purpose.

The plaintiffs argue that since there is no loss of reve-

nue resulting from the extraction of NGLs under satis-

fied fixed-quantity contracts, Subpart K contemplates, or

at least permits, the exclusion of fixed-quantity con-

tracts. See e.g. Exxon’s Reply to Defendants’ Response,

page 4. This argument, however, proves too much. When

there are outstanding contracts—fixed-quantity or other-

wise—and a stream of gas enters a plant for processing,

part of the BTU content that could conceivably have

gone toward satisfaction of those existing contracts is

lost. In other words, the loss of revenues from process-

6 Plaintiffs’ argument was rejected in the original Memorandum

Opinion, pages 5-7.

PRA, FONTS AER ATSC. taP IE Ny Ni clltaiei ceieiititee tapi oo ht An = -

oe NL es

SoS aero hey in AOm AE LER NK ar sel

53a

ing actually pertains to all the existing contracts. Plain-

tiffs’ theoretical attribution of the loss of revenue due to

processing exclusively to surplus contracts is spurious;

it is merely a rationalization for charging the highest

price possible. Plaintiffs obviously would not realize as

much shrinkage loss by using their long-term low price

contracts as they would on their more current contract;

that is not a phenomenal or unique situation; nor is it

a valid excuse to evade the regulations and exclude fixed-

quantity contracts from calculating shrinkage.

Further, plaintiffs argue that the shrinkage calcula-

tion should include contracts under which the liquids

would have been sold but for processing, but exclude con-

tracts under which the liquids would not have been sold.

Fixed-quantity contracts should, according to plaintiffs,

therefore be excluded because no more than the commit-

ted quantity would have been sold thereunder by any

rational processor. This argument presumes that the

regulations intend to allow processors to recoup increased

costs based on prices that could presently be contracted

for gas. The fact that Exxon would sell “no more than

the committed quantity” is totally irrelevant. Exxon is

presumed by the regulations to sell only the fixed amount

at the contract price; that is why the average of all such

contract prices are weighted. The price which Exxon

actually received under the fixed-quantity contract,

though not a price that Exxon would necssarily contract

for at the time of measurement, is none the less relevant

for calculating loss of revenues due to shrinkage. The

dollar-for-dollar pass through entails actual, not poten-

tial, prices.

The plaintiffs finally make a construction argument

with respect to Subpart K. Plaintiffs argue that since

§ 162 does not mention “weighted average”, that term,

when used in § 167 pertains only to those situations

where one entity operates several gas plants and cal-

54a

culates a single cost of shrinkage. Ruling 1973-18 di-

rectly refutes such a strained reading of the regulations:

The purpose of requiring a ‘weighted average’ cost

comparison is to provide a method by which firms

which have chosen, pursuant to § 212.167(b), to ag-

gregate the total amount of increased product costs

respecting volumes of natural gas subject to differ-

ing sales contracts which are processed in one or

more plants, may calculate a single amount repre-

senting the increased costs of natural gas shrinkage

for the aggregate of volumes of natural gas proc-

essed. Accordingly, the above formula provide the

acceptable methods for the computation of a

‘weighted average cost of natural gas shrinkage.’

Where the increased costs associated with several

volumes of processed natural gas have been aggre-

gated, the residue price which is used to determine

the cost of natural gas shrinkage is a weighted

average of all the contract price terms under which

the different volumes of processed natural gas are

sold. Ruling 1975-18, 40 Fed. Reg. at 55863, Decem-

ber 2, 1975 (emphasis added).

Clearly Subpart K should be read as a whole, and should

not be arbitrarily segregated into parts which, standing

alone, are meaningless.

Mobil, while making the same general argument with

respect to the exclusion of the fixed-quantity contract

price from the weighted average, also asserts that it

should not be judged on the basis of a factual situation

different from its own. The regulations in question did

not contemplate uniform contractual situations for all

gas processors, but rather were premised on the assump-

tion that the contractual situations would be varied. See

39 Fed. Reg. 32720, September 10, 1974. The fact that

all of the gas processed at Mobil’s Old Ocean piant is

under contract does not in any way alter the interpreta-

tion of the regulations discussed above.

as ee See er ee ree Canine %

/

4

55a

The court finds that the plaintiffs’ “incremental meth-

od” was unreasonable under both Subpart E and Subpart

K, and that the DOE interpretation is reasonable in

light of its purpose.

ARBITRARY AND CAPRICIOUS

All plaintiffs take the position that Subpart K, and

the procedure used in the promulgating this subpart, con-

stituted arbitrary and capricious action on the part of

DOE. The thrust of the argument is that in promulgat-

ing Subpart K, DOE failed to take into account the fixed-

quantity contracts, and that these contracts are so im-

perative to the determination of shrinkage costs that the

agency’s failure to explicity consider them renders the

regulations void under Motor Vehicle Manufacturers As-

sociation of the United States, Inc. v. State Farm Mu-

tual Automobile Insurance Co., 51 U.S.L.W. 4953 (U.S.

June 24, 1983) (hereinafter “Airbags’”). In the Airbags

case, the Supreme Court held that the revocation of a

safety standard requiring passive restraints in cars

arbitrary and capricious. Motor Vehicle Standard 208,

promulgated pursuant to the National Traffic and Motor

Vehicle Safety Act of 1966, required automobile manu-

facturers to install either of two passive restraint de-

vices: airbags or seatbelts. The industry planned to com-

ply by installing seatbelts in 99% of the cars produced.

Id. at 4955. The agency later concluded that the seat-

belts would not achieve the anticipated safety results be-

cause they could be detached, and completely rescinded

the regulation. Since the agency itself had previously

determined that airbags would achieve the desired results

under the Motor Vehicle Safety Act, the Court held that

the rescission of Standard 208 without even considering

the airbag option was arbitrary and capricious. Id. at

4957, 4958.

When Subpart K was promulgated, however, the DOE

considered the analogous relevant factors. As stated in

56a

the Preamble, “. . . there is no single ideal solution to

the regulation of natural gas liquid prices, and the regu-

lations adopted by the FEA today are a necessary com-

promise among the conflicting considerations which must

be taken into account. ... [T]he fundamental objec-

tive is to permit prices that will be as low as reasonably

possible without adversely affecting the availability of the

product.” 39 Fed. Reg. 4408, December 24, 1974. To

achieve this dual-objective, the agency considered several

approaches: price ceilings, profit margin limitations, and

a flexible price based on varying costs of gas and crude

oil. Jd. These are the crucial considerations. Tixed-

quantity contracts are not to Subpart K as airbags are to

Standard 208. Fixed-quantity contracts are only one

aspect of one of these alternative price control alterna-

tives. The Supreme Court made this clear in Airbags by

stating that “... a court may not impose additional pro-

cedural requirements upon an agency ... Nor do we

broadly require an agency to consider all policy alterna-

tives in reaching a decision. It is true that a rulemaking

cannot be found wanting simply because the agency

failed to include every alternative device and thought

conceivable by the mind of man .. . regardless of how

uncommon or unknown that alternative may have been.”

Id. at 4958, citing Vermont Yankee Nuclear Power Corp.

v. NRDC, 435 U.S. 519 (1977). In this case, the plain-

tiffs’ contention would impose insurmountable require-

ments upon DOE. Requiring consideration of each spe-

cific contract in effect would force executive agencies to

foresee every conceivable contingency and would effec-

tively preclude them from rulemaking. The court finds

that the agency did not act arbitrarily or capriciously in

the promulgation of Subpart K.

ONE-HOUSE VETO

Finally, in a motion for summary judgment, Exxon

asserts that the Acts in question, the EPAA and EPCA,

57a

15 U.S.C. $§ 751, et seq., are invalid because they con-

tained a one-house veto provision, declared unconstitu-

tional by the Supreme Court in Immigration and Natu-

ralization Service v. Chadha, —— U.S. , 51 US.L.W.

4907 (June 23, 1983) .*

In the Chadha case, the statute in question contained a

severability clause, thus only the veto provision itself was

invalidated. Further in Chadha, the veto provision was

actually exercised to the detriment of the plaintiff. The

Supreme Court emphasized the fact that exercise of the

veto was a legislative function, and thus violated Article I.’

In this case, however, no veto has been exercised over the

regulations in question. A substantial constitutional ques-

tion exists as to whether a retained veto provision, though

unexercised, falls under the Chadha decision. The fact

that a district court has held such a retained veto provi-

sion unconstitutional makes the issue no less substantial.

EFOC v. Allstate Insurance Co., No. J82-0186(B) (S.D.

Miss. September 9, 1983). The far-reaching implications

of invalidating statutes which merely contain one-house

veto provisions are hardly settled by this Mississippi

court opinion. Further, in this case, Congress does not

have the power to veto the regulations in question.

Whether Exxon has standing to raise the issue is thus

closely intertwined with the constitutional question. Both

the constitutionality of the Acts and the standing ques-

ion depend on the limits the Supreme Court places upon

the Chadha decision.

6a The veto provisions in the EPAA and EPCA pertained only to

certain provisions giving the President decontrol authority.

7 “Examination of the action taken here by one House pursuant

to § 244(c) (2) reveals that it was essentially Legislative in purpose

and effect . .'. The one-House veto operated in this case to overrule

the Attorney General and mandate Chadha’s deportation; absent

the House action, Chadha would remain in the United States.

Congress has acted and its action has altered Chadha’s status. /d.

at 4916 (emphasis supplied).

58a

Therefore, pursuant to 12 U.S.C. § 1904 note (§ 211),

the substantial constitutional issues raised by Exxon’s

motion for summary judgment are certified to the Tem-

porary Emergency Court of Appeals.

CONCLUSION

For the reasons stated above, the court finds that:

1. Both the plaintiffs’ intra-firm transfer price method

and alternative incremental method are unreasonable un-

der Subpart E.

2.. DOE’s interpretation of Subpart K is reasonable

i. light of the purpose of Subpart K.

3. The plaintiffs’ exclusion of fixed-quantity contracts

from the calculation of the weighted-average cost of

shrinkage is unreasonable under Subparts E and K. In

short, the weighted average cost of shrinkage reflects

what processors were receiving under contracts in effect

for their processed gas; and under either Subpart E or

Subpart K, the exclusion of fixed-quantity contracts over-

states what was actually received and is thus contrary to

the purposes of the regulations.

4. DOE’s promulgation of Subpart K was not arbi-

trary and capricious.

5. The one-house veto provisions in the EPAA and

EPCA present substantial constitutional questions.

6. The court has considered the relevant agency rul-

ings and interpretations and, as discussed in the original

Memorandum Opinion, finds that they support rather

than refute DOE’s position in this case.

7. The material and ultimate facts in this case are

not in dispute.

Therefore:

The Motion of Texaco Inc. for a New Trial is denied.

eS 6 Sa ere

59a

The Motion of Mobil Oil Corporation and Mobil Oil

Exploration and Producing Southeast, Inc. for New Trial

or in the Alternative for Clarification is denied.

The Motion of Exxon Corporation to Clarify Memo-

randum Opinion Concerning Subpart E is denied.

The Motion of Exxon Corporation to Vacate Findings

of Fact and Conclusions of Law Concerning Subpart K

and to Substitute Other Findings of Fact and Conclu-

sions of Law is denied.

The motion of Exxon for Partial Reconsideration in

Light of Intervening Supreme Court Opinion and Mis-

apprehension of Parties’ Positions is denied.

Exxon’s Supplemental Motion for Summary Judgment

presents substantial constitutional questions and is certi-

fied to the Temporary Emergency Court of Appeals.

In accordance with the Memorandum Opinion issued

June 24, 1983, the plaintiff’s Motion for Summary Judg-

ment with regard to the ethane exclusion is granted, and

the defendants’ corresponding motion is denied. The de

fendant’s Motion for Summary Judgment on all other is-

sues is granted, and the plaintiff’s motion denied.

The attorneys will confer and submit a judgment in

accordance with this order. Such judgment shall include

the certification of the constitutional issues to the Tem-

porary Emergency Court of Appeals and shall be sub-

mitted to the court for entry on or before December 15,

1983.

The Clerk will furnish a copy hereof to each attorney.

JUDGMENT

(December 21, 1983)

This matter came before the Court on the parties’

cross-motions for summary judgment. For the reasons

stated in the Court’s Memorandum Opinion of June 24,

60a

1983 and its Memorandum Order of November 23, 1983,

it is this 21st day of December, 1983,

ORDERED, ADJUDGED and DECREED that the

motion for summary Judgment of the defendant Depart-

ment of Energy is denied with respect to the validity of

the Ethane Exclusion Rule as promulgated on December

24, 1974, 39 Fed. Reg. 44413, 10 C.F.R. § 212.147 sub-

section (a), and it is granted in all other respects; and

it is further provided that this judgment shall not ad-

judge the validity of any regulations pertaining to the

ethane exclusion which were promulgated after Decem-

ber 24, 1974, and this judgment is intended only to rule

as invalid the Ethane Exclusion Rule as promulgated on

December 24, 1974; and it is further

ORDERED, ADJUDGED and DECREED that the

motion for summary judgment of the plaintiffs is denied

except with respect to the validity of the same 10 C.F.R.

§ 212.147 as promulgated on December 24, 1974, 39 Fed.

Reg. 44413 subsection (a) and it is granted with respect

to that subsection; and it is further

ORDERED that the Joint Amended Complaint of the

parties is dismissed with prejudice; and it is further

ORDERED that plaintiffs shall bear their own costs in

this lawsuit, and no later than 30 days from the date

hereof, the defendant shall recover from plaintiffs its

costs to be taxed by the Clerk of the Court.

SUPPLEMENTAL MEMORANDUM

(December 21, 1983)

Plaintiff Texaco claims that it has reserved its estoppel

issue based on the Larry White “incrementa} costing let-

ter.” This court, however, has already disposed of the

issue. The June 1983 Memorandum Opinion held that

the Larry White letter was “in the nature of informal

advice by agency employees which [does] not have the

6la

stature of official agency interpretations through DOE’s

Office of General Counsel and accordingly, are to be ac-

corded little weight for purposes of regulatory interpreta-

tion.” Memorandum Opinion, p. 7 citing Pennzoil Co. v.

United States Department of Energy, 680 F.2d 156, 171

(TECA 1982). Plaintiff Texaco again raised the Larry

White letter issue in its Motion for New Trial. In that

motion and brief, Texaco did not mention its purported

reservation of the estoppel issue. This court, in the No-

vember 1983 Memorandum Order, specifically denied

Texaco’s Motion for New Trial. Memorandum Order,

p. 19.

The key to the issue is the fact that Texaco could not

justifiably rely on agency advice without seeking a formal

agency interpretation. This point is made clear in the

Pennzoil case. See Pennzoil Co. v. United States Depart-

ment of Energy at 179. The estoppel argument was

therefore rejected by the court in both opinions.

Plaintiff Texaco further contends that the estoppel is-

sue was not before the court because the defendants’

Cross Motion for Summary Judgment, which requested

judgment on all issues raised in the plaintiffs’ Joint

Amended Complaint, was not ever received by plaintiff

Texaco. Texaco received the defendants’ Brief in Support

of their Cross Motion for Summary Judgment on August

9, 1981, yet did not complain about not being served

with the motion, and on October 25, 1983, counsel for

Texaco appeared at the hearing in Abilene on the pend-

ing motions for summary judgment and did not mention

the lack of service. Therefore, the judgment to be entered

in this case granting the defendants’ Motion for Sum-

mary Judgment in all but one instance shall be a judg-

ment overruling and denying the estoppel issue as raised

by Texaco.

The Clerk will furnish a copy hereof to each attorney.

62a

ORDER CERTIFYING SUBSTANTIAL

CONSTITUTIONAL ISSUE TO THE

TEMPORARY EMERGENCY COURT OF

APPEALS

(December 21, 1983)

Pursuant to section 211(c) of the Economic Stabiliza-

tion Act of 1970, 12 U.S.C. § 1904 note, the court hereby

certifies to the Temporary Emergency Court of Appeals

the following substantial constitutional issue raised by

plaintiff Exxon Corporation in its Supplemental Motion

for Summary Judgment:

Whether the Emergency Petroleum Allocation Act

of 1973 and the Energy Policy and Conservation Act

are unconstitutional under Immigration & Naturali-

zation Service v. Chadha, 103 §S. Ct. 2764 (1983),

in that they contain unconstitutional one-house leg-

islative veto provisions that are not severable from

the remainder of those statutes, thereby rendering

void the regulations promulgated pursuant thereto.

Pursuant to Rule 16 of the Temporary Emergency Court

of Appeals, the nature of this cause and the facts on

which the certified issue arises are set forth in this

Court’s Memorandum Opinion and Memorandum Order,

which are attached hereto and incorporated herein for

purposes of said Rule 16.

The Clerk will furnish a copy hereof to each attorney.

63a

APPENDIX C

UNITED STATES DISTRICT COURT

D. KANSAS

MDL No. 378

IN RE THE DEPARTMENT OF ENERGY

STRIPPER WELL EXEMPTION LITIGATION

Sept. 13, 1983

On Motion to Certify Constitutional Issues

Jan. 25, 1984

Joseph W. Kennedy, Morris, Laing, Evans, Brock &

Kennedy, Chartered, Wichita, Kan., for plaintiff.

Larry P. Ellsworth, Marcia K. Sowles, Samuel Soopper,

Dept. of Energy, Office of Gen. Counsel, Washington,

D.C., for Dept. of Energy.

Brian G. Grace, Curfman, Harris, Stallings, Grace &

Snow, Wichita, Kan., for Tenneco Oil, Pennzoil, Tosco,

Ashland Oil, Texas City Refining.

Alexander B. Mitchell, Wichita, Kan., Harold E. Kohn,

Michael D. Hausfeld, Joseph C. Kohn, Kohn, Savett,

Marion & Graf, Philadelphia, Pa., for Nat. Freight, Inc.

and Philadelphia Elec. Co.

George G. Olsen, Williams & Jensen, Washington, D.C.,

for IU Intern. Oil & Gas Inc. .

John F. Hayes, Hutchinson, Kan., William G. Rid-

doch, Houston, Tex., for Shell Oil Co.

James F. Flug, Washington, D.C., for State of Ala.,

Michigan, California.

64a

Wayne Hundley, Deputy Atty. Gen., Topeka, Kan.,

Arthur J. Galligan, Washington, D.C., E. Dwight Taylor,

Wichita, Kan., for States of Kan., Del., R.I., N.D., Ia.,

La. and Ala., Mich. and Cal., W.Va.

Alexander B. Mitchell, Wichita, Kan., Jerry S. Cohen,

Michael D. Hausfeld, Patricia F. Bak, Washington, D.C.,

for Independent Motor Gasoline Retailers, see dkt 279

for names of intervenors.

John A. Gibney, Jr., Richmond, Va., for intervenor

Commonwealth of Va.

John R. Tarpley, Asst. Atty. Gen., Nashville, Tenn.,

for State of Tenn.

Richard P. Wilson, Asst. Atty. Gen., Columbia, S.C.,

for Georgia and South Carolina.

J. Wallace Malley, Jr., Jane Hart Marter, Asst. Attys.

Gen., Montpelier, Vt., for State of Vt.

Claude E. Salomon, Deputy Atty. Gen., Div. of Law,

Newark, N.J., for State of N.J.

Bernard Nash, Edward G. Modell, Blum & Nash,

Washington, D.C., for States of Pa., Nev., Hawaii and

Guam.

Jo Anne Sanford, Sp. Deputy Atty. Gen., Steven

Bryant, Asst. Atty. Gen., Raleigh, N.C., for North

Carolina.

Brad P. Engdahl, St. Paul, Minn., for Minnesota.

Frank J. Huftless, Asst. Atty. Gen., Lincoln, Neb., for

Nebraska.

Frank W. Ostrander, Asst. Atty. Gen., Portland, Or.,

for Oregon.

Eduardo L. Buso, Asst. Atty. Gen., San Juan, P.R.,

for Puerto Rico.

65a

Richard R. Knoepfel, Chief, Law Div., St. Thomas,

U.S. V.L., for Virgin Islands.

William C. Primm, Paul Bardacke, Sante Fe, N.M.,

for New Mexico.

Inez Smith Reid, Corp. Counsel, Doreen E. Thompson,

Stuart Cameron, Washington, D.C., for District of

Columbia.

Richard L. Griffith, Asst. Atty. Gen., Denver, Colo., for

Colorado.

Dennis M. Ryan, Asst. Atty. Gen., Boston, Mass., for

Massachusetts.

Richard F. Webb, Asst. Atty. Gen., Hartford, Conn.,

for Connecticut.

Bruce E. Mohl, Asst. Atty. Gen., Concord, N.H., for

New Hampshire.

Robert Frank, Asst. Atty. Gen., Augusta, Maine, for

Maine.

Stanley B. Klimberg, Gen. Counsel, N.Y. State Energy

Office, Albany, N.Y., Robert Abrams, Atty. Gen. of the

State of N.Y., New York City, for New York.

L.C. Ross, Denver, Colo., James W. Collier, Detroit,

Mich., Robert Martin, Paul Swartz, Martin Bauer,

Wichita, Kan., for Total Petroleum Inc.

Brian Grace, Wichita, Kan., Ralph J. Maynard, Hous-

ton, Tex., for Tenneco Oil Co.

John P. Mathis, Catherine C. Wakelyn, Washington,

D.C., for Tenneco Oil Co. and Pennzoil Co.

Perry O. Barber, Houston, Tex., for Pennzoil Co.

Kenneth L. Bachman, Jr., Eugene M. Goott, Washing-

ton, D.C., Jeanette M. Thomas, Los Angeles, Cal., for

Tosco Corp.

66a

Thomas A. Donovan, Pittsburgh, Pa., Robert H. Comp-

ton, Kathleen C. Gillmore, Ashland, Ky., for Ashland Oil

Inc.

Richard P. Noland, Robert R. Morrow, Monica A.

Otte, Washington, D.C., for Texas City Refining Inc.

Brian Grace, Wichita, Kan., Van R. Boyette and

Joseph C. Bell, Washington, D.C., for American Petro-

leum Refiners Ass’n.

Thomas D. Kitch, Wichita, Kan., Pillsbury, Madison

& Sutro, San Francisco, Cal., for Chevron U.S.A. Inc.

James P. Zakoura, Kansas City., Kan., Robert L.

Gowdy, Kansas City, Mo., for Farmland Industries, Inc.

Alphonse M. Alfano, Robert S. Bassman, Douglas B.

Mitchell, Washington, D.C., Will Marson, Topeka, Kan.,

for Nat. Oil Jobbers Council.

Walter Davis, Asst. Atty. Gen., Energy Div., Austin,

Tex., for Texas.

Marian Yoder, Asst. Atty. Gen., Cheyenne, Wyo., for

State of Wyo.

David G. High, Deputy Atty. Gen., Boise, Idaho, for

State of Idaho.

James F. Flug, Lee Ellen Helfrich, Lobel, Novins &

Lamont, Washington, D.C., for State of Wyo., Idaho and

Ind.

Frank Baldwin, Deputy Atty. Gen., Indianapolis, Ind.,

for State of Ind.

E. Dwight Taylor, Hulnick & Taylor, Wichita, Kan.,

Andrew P. Miller, Arthur J. Galligan, Peter J. Kadzik,

Washington, D.C., for State of Utah.

67a

MEMORANDUM AND ORDER OF REFERRAL FOR

FACT FINDING TO ADMINISTRATIVE AGENCY

THEIS, District Judge.

Like flies to honey, claimants are quickly drawn by a

fund containing over one billion dollars. These claimants

have radically differing notions as to how the fund should

be distributed, with one factor common to all suggested

approaches: each claimant, unsurprisingly, desires a

methodology of distribution likely to result in a large

percentage of the fund being deposited into said claim-

ant’s pockets. Now before the Court is a motion to refer

the question of fund distribution to the Department of

Energy’s Office of Hearing and Appeals (OHA). Some

of the parties wholeheartedly endorse this approach,

others wholeheartedly oppose it, and others embrace it

only as a fall-back position should the Court reject their

contentions that the money should go immediately to

them. Needless to say, all parties view this motion as

extremely important, if the immense effort funneled into

the voluminous briefs on this issue are an accurate gauge

of the parties’ perception of the importance of this

motion.

This action is a consolidation of a number of cases

brought by oil producers to enjoin the Federal Energy

Administration (FEA), now the Department of Energy

(DOE), from enforcing Ruling 1974-29, concerning low

production oil wells, commonly called “stripper wells.”

The Court enjoined enforcement of the regulations in

question, but ordered the oil producers to deposit into

escrow the difference between the stripper well price and

the controlled price of crude oil affected by the injunc-

tion. As of October 31, 1982, the escrow fund, including

interest, contained over one billion dollars.

The issue of the validity of the regulations and Ruling

was finally settled in In Re The Department of Energy

Stripper Well Exemption Litigation, 690 F.2d 1375 (Em.

68a

App. 1982), cert. denied, U.S. ——, 103 S.Ct. 763,

74 L.Ed.2d 978 (1983), in which the Temporary Emer-

gency Court of Appeals (TECA) reversed this Court’s

decision and upheld the rulings and regulations as valid.

TECA remanded this action to this Court with instruc-

tions to enter judgment for DOE, which judgment has

been entered. The effect of TECA’s decision is to de-

clare the funds deposited in escrow to be overcharges

received due to violations of the petroleum pricing regu-

lations. The remaining task is the appropriate dispensa-

tion of the escrowed funds—in effect a monumental in-

terpleader action with potential classes and sub-classes.

The DOE has moved the Court to refer the issue of

remedy to DOE pursuant to the doctrine of primary ju-

risdiction. DOE contends that the remedy issues are

complex and are within the special competence of the

agency. DOE states that the distribution of the various

claims will require analysis of the ability of the claim-

ant to pass through increasing costs and the extent to

which such costs were actually passed through. DOE also

notes that an analysis of the impact of the complex

Entitlements Program and of the system of “banks’”’ of

increased costs will be required. DOE points out that it

has already established a procedural mechanism for con-

sidering refund applications and that issues similar to

those before the Court are presently being considered in

refund actions before OHA. DOE contends that initial

consideration by the agency, subject to review by the

Court, will be more efficient than the Court conducting

the entire factual inquiry itself.

Nearly every premise underlying the DOE’s motion to

refer has come under attack by other parties, which

challenge both DOE’s characterization of the remaining

inquiry and DOE’s competence and fairness to conduct it.

Plaintiff oi] producers vigorously oppose the motion

to refer. From their perspective, the remaining ques-

69a

tions are mostly legal, not factual. They contend referral

would, by implication, decide these legal issues and that

the result would be contrary to what they view as con-

trolling legal precedent. The principal legal contention

advanced by producers is that it is improper to attempt

to determine the actual damages beyond the refiner stage

of distribution. In other words, the Court should not

consider whether any overcharges were passed through by

refiners to marketers and consumers. The basis of this

contention is a line of precedent in antitrust law reject-

ing pass through theories and limiting recovery to first

purchasers, with certain limited exceptions. Hanover

Shoe, Inc. v. United Machine Corp., 392 U.S. 481, 88 S.

Ct. 2224, 20 L.Ed.2d 1231 (1968); and Illinois Brick

Co. v. Illinois, 431 U.S. 720, 97 S.Ct. 2061, 52 L.Ed.2d

707 (1977). This approach has been applied to private

enforcement actions brought under Section 210 of the

Economic Stabilization Act. FKastern Airlines, Inc. v.

Atlantic Richfield Co., 609 F.2d 497 (Em. App. 1979).

Producers also contend that the OHA has failed to dem-

onstrate either expertise or efficiency in its handling of

refund claims. Producers further claim that OHA is not

autonomous and has prejudiced the issues in this case.

Finally, producers claim that referral is not appropri-

ate because the pending issues are of the type within

the Court’s competence to address. Producers state that

DOE can give the Court the benefit of its expertise by

making recommendations to the Court by way of briefs.

Essentially similar positions are held by the first pur-

chasers, refiners that actually purchased the petroleum

in question. As presented in the brief filed by Total Pe-

troleum, the first purchasers’ position embraces the

theory that Hanover Shoe and Illinois Brick preclude ex-

amination of passed through costs, and that the first

purchasers are entitled to the entire amount of over-

charges. The first purchasers contend that allowance of

passed through recovery would subject the first pur-

70a

chasers to double liability if private parties sue them

pursuant to Section 210 for the overcharges. The first

purchasers argue that this is not a Section 209 action

and is not a Section 210 action, but is analogous to a

Section 210 action.

Not dissimilar contentions are advanced by the indi-

cated refiners, who also oppose referral, reject pass

through recovery by marketers and consumers, and ques-

tion DOE’s objectivity and competence. The key thrust

of the indicated refiners’ approach is that all refiners

who participated in the Entitlements Program are eligi-

ble for recovery, and not just those who actually pur-

chased the oil in question. This is required, contend the

indicated refiners, because the Entitlements Program

served to spread the overcharges equally among all par-

ticipants in the Entitlements Program. In addition to

opposing consideration of passed through overcharges on

Illinois Brick grounds, the indicated refiners contend that

overcharges were not passed on, because market condi-

tions restricted what refiners could charge and thus the

refiners bore the burden of the overcharges. The indi-

cated refiners also contend that the forces of the market

will force them to pass through the refunds they receive

from the escrow fund in the form of reduced prices to

ultimate consumers.

The intervening States argue that referral is unneces-

sary and contend that this Court should order distribu-

tion to the States as representatives of the ultimate con-

sumers of petroleum products. The States rely on the

recent opinion of Judge Flannery in United States v.

Exxon, 561 F.Supp. 816 (D.D.C. 1988), in which the

Court ordered distribution to the States for use in pro-

grams designed to benefit petroleum consumers. The

States argue that review of the regulatory statutes

shows that overcharges were passed along to the ulti-

mate consumers and that it would be impossible to as-

certain the precise damage borne by the ultimate victim.

Tla

Thus, since DOE could not precisely determine losses

suffered by particular claimants, the Court should, in the

interests of restitution and equity, distribute the fund to

the States, in proportion to their citizen’s use of petro-

leum products during the controls period, for use in

energy-related programs. To refer the case would, in

the States’ view, plunge the agency, the Court, and the

escrow fund into an administ~ative quagmire.

The States argue, however, that if their proposal for

immediate payout to the States is not endorsed by the

Court, the motion to refer should then be granted. They

argue that if the quagmire must be entered, DOE has the

expertise and procedures to best accommodate the expedi-

tion. The States also contend that the Court can exer-

cise supervisory control over the DOE to allay fears

of bias and to insure prompt attention to the case.

Intervening purchasers have split on the issue of re-

ferral. The National Oil Jobbers Council (NOJC), a fed-

eration of 42 trade associations representing thousands

of small petroleum marketers, favors referral. The

NOJC contends that the Government has the duty to at

least try to ascertain the identity of overcharge victims,

and cites Citronelle-Mobile Gathering, Inc. v. Edwards,

669 F.2d 717 (Em. App. 1982) in support of this con-

tention. The NOJC contends that there is no factual

basis, in the absence of such an attempt, to conclude

that none of the overcharge victims can be identified.

A number of other intervening purchasers, seeking to

represent classes of gasoline retailers, trucking companies

and electric uti.ities, opposed referral. They raise ques-

tions of agency bias and assert the Government is or may

be trying to appropriate the funds for itself. They chal-

lenge DOE’s competence and expertise and claim that re-

ferral will merely cause further delay in resolving this

ease. They raise the possibility of the Court appointing

a special master and generally contend that the distribu-

72a

tion issue is within the Court’s competence and province

to resolve.

Consideration of the above questions leads the Court

to conclude that two basic questions must be resolved

before a decision on referral can be made:

1. Are any parties other than the first purchasers

or participants in the Entitlements Program en-

titled to refunds?

2. Is it clearly impossible to ascertain particular

harms suffered by particular parties by virtue of

the overcharges?

If the first question is answered in the negative, then

it must be asked: why refer? If the answer to the first

question is affirmative, however, the second question be-

comes decisive. If it is clearly impossible to ascertain the

impact of overcharges with particularity, does equity

require that the fund be distributed in the public inter-

est to the States, or to the Government standing in place

of the ultimate consumers? The Court will now examine

these questions in detail.

The key legal issue in deciding whether any parties

other than first purchasers or participants in the Entitle-

ments Program can recover is the applicability of Han-

over Shoe and Illinois Brick to this case.

In Hanover Shoe, supra, the Supreme Court held that

defendant in a private antitrust action could not assert

the “passing on” defense that plaintiff shoe manufacturer

suffered no legally cognizable injury because it increased

the prices it charged its customers (i.e., it “passed on”

the overcharges caused by defendant’s illegal actions).

The Court’s reasoning on this issue is as follows:

“Even if it could be shown that the buyer raised his

price in response to, and in the amount of, the over-

charge and that his margin of profit and total sales

had not thereafter declined, there would remain the

73a

nearly insuperable difficulty of demonstrating that

the particular plaintiff could not or would not have

raised his prices absent the overcharge or main-

tained the higher price had the overcharge been dis-

continued. Since establishing the applicability of the

passing-on defense would require a convincing show-

ing of each of these virtually unascertainable fig-

ures, the task would normally prove insurmountable.

On the other hand, it is not unlikely that if the ex-

istence of the defense is generally confirmed, anti-

trust defendants will frequently seek to establish its

applicability. Treble-damage actions would often re-

quire additional long and complicated proceedings

involving massive evidence and complicated theories.

“In addition, if buyers are subjected to the passing-

on defense, those who buy from them would also

have to meet the challenge that they passed on the

higher price to their consumers. These ultimate con-

sumers, in today’s case the buyer of single pairs of

shoes, would have only a tiny stake in a lawsuit and

little interest in attempting a class action. In con-

sequence, those who violate the antitrust laws by

price fixing or monopolizing would retain the fruits

of their illegality because no one was available who

would bring suit against them. Treble-damage ac-

tions, the importance of which the Court has many

times emphasized, would be substantially reduced in

effectiveness.”

Hanover Shoe, 88 §.Ct. at 2231-2232.

In Illinois Brick, supra, the Court concluded that the

pass-on rule must be applied equally to plaintiffs and

defendants, and held that only the direct purchasers, and

not others in the chain of manufacture or distribution

could recover for overcharges. As in Hanover Shoe, the

Court emphasized both the complexity that pass-on

theories entail and the resultant impairment of private

antitrust enforcement. The Court noted:

74a

“Permitting the use of pass-on theories under § 4 es-

sentially would transform treble-damages actions

into massive efforts to apportion the recovery among

all potential plaintiffs that could have absorbed part

of the overcharge—from direct purchasers to mid-

dlemen to ultimate consumers. However appealing

this attempt to allocate the overcharge might seem

in theory, it would add whole new dimensions of

complexity to treble-damages suits and seriously un-

dermine their effectiveness.”

Illinois Brick, 97 S.Ct. at 2070.

The Court also noted:

“The concern in Hanover Shoe for the complexity

that would be introduced into treble-damages suits

if pass-on theories were permitted was closely re-

lated to the Court’s concern for the reduction in the

effectiveness of those suits if brought by indirect

purchasers suing for the full amount of the over-

charge. The apportionment of the recovery through-

out the distribution chain would increase the overall

costs of recovery by injecting extremely complex is-

sues into the case; at the same time such an ap-

portionment would reduce the benefits to each plain-

tiff by dividing the potential recovery among a much

larger group. Added to the uncertainty of how much

of an overcharge could be established at trial would

be the uncertainty of how that overcharge would be

apportioned among the various plaintiffs. This ad-

ditional uncertainty would further reduce the in-

centive to sue. The combination of increasing the

costs and diffusing the benefits of bringing a treble-

damage action could seriously impair this important

weapon of antitrust enforcement.”

Illinois Brick, 97 S.Ct. at 2074.

Based on Hanover Shoe and Illinois Brick, TECA has

held that the passing on defense cannot be used in a pri-

vate enforcement action under Section 210 of the Eco-

75a

nomic Stabilization Act. Eastern Air Lines, Inc. v. At-

lantic Richfield, supra.

This Court does not believe the rationale of Hanover

Shoe and Illinois Brick is applicable, however, in this

action. This action is fundamentally different from a

private enforcement action under the Antitrust Laws or

under Section 210 of the Economic Stabilization Act. In

this action, oil producers sought declaratory judgments

to forestall government enforcement of overcharge viola-

tions under Section 209. Preliminary injunctive relief

was granted, conditioned on the oil producers paying the

alleged overcharges into escrow. The Court now considers

this action to be, in effect, a Government enforcement

action in which the fact of overcharge has been deter-

mined and the Court is now faced with effecting

restitution.

In the Court’s view, the difficulty in computing passed

on costs and the subsequent adverse effect on antitrust

enforcement were inextricably bound together in Hanover

Shoe. In that case the Court found that addition of

pass-on issues to already protracted private antitrust

suits would seriously hamper the scheme of private en-

forcement of the antitrust laws. In Illinois Brick, the

Court was faced with the problem of whether to permit

offensive use of pass-on theories after defensive use had

been barred by Hanover Shoe. The Court declined to al-

low offensive use, repeatedly emphasizing the adverse im-

pact on private antitrust enforcement that pass-on

theories would entail. As one commentator noted:

“The Illinois Brick result apparently rests on the

proposition that a rule allowing all purchasers to re-

cover would so reduce the incentives for direct pur-

chasers to bring suit that while there might be some

enforcement gains at the indirect purchaser level,

the total number of suits would decline.”

The Supreme Court, 1976 Term, 81 Harv. L.Rev. 72, 226

(1977).

76a

In this case no such fears are applicable. There is no

private enforcement involved, and thus, no incentive to

encourage private suits by disallowing pass-on theories.

On that ground alone, the Hanover Shoe—lIllinois Brick

doctrine is inapplicable to an action under Section 209

or an action, such as this one, closely analogous to a Sec-

tion 209 action. While Hanover Shoe and Illinois Brick

may be suitable for Section 210 actions, it must be noted

that the objectives of Section 209 differ significantly

from those of Section 210. Section 210 provides for pri-

vate suits seeking damages. Section 209 provides for

Government action in which the Court may order

restitution.

In Section 209, Congress gave the courts “equitable

power... to set things right and order restitution.”

S.Rep. No. 92-507, 92nd Cong., 1st Sess. reprinted in 2,

1971 U.S.Code Cong. & Ad.News 2283, 2291, quoted in

Sauder v. Department of Energy, 648 F.2d 1341 (Em.

App. 1981). In Sauder, TECA made clear that restitu-

tion, as provided in Section 209, is fundamentally an

equitable concept. The Court quoted Moore’s Federal

Practice Vol. 5, | 38.24[2], stating:

“In equity, restitution is usually thought of as a

remedy by which defendant is made to disgorge ill-

gotten gains or to restore the status quo or to ac-

complish both objectives.” 648 F.2d at 1348.

TECA approved an action which did not seek damages,

“which may or may not be the amount of the over-

charge,” but sought restitution. TECA also made it clear

that the Court’s equitable power is broad:

“There is no indication . . . that the section thereby

attempts to limit the power of the courts or the

agency to restitution or to a particularly strict inter-

pretation of restitution.”

Sauder, 648 F.2d at 1348.

77a

Restitution seeks to restore the status quo but, if that

is not possible because the status quo has been perma-

nently altered, restitution seeks to provide other kinds of

compensation. See Restatement of Restitution, § 1, com-

ment a (1937).

Thus, the restitutionary nature of Section 209 and of

this action differ fundamentally from the damages rem-

edy of Section 210 and of the Antitrust Laws. For this

additional reason, the Hanover Shoe and Illinois Brick

cases do rot apply to this action. This was also recog-

nized by the District Court in Citronelle-Mobile Gather-

ing, Inc. v. O’Leary, 499 F.Supp. 871 (S.D. Ala. 1980),

rev'd on other grounds, 669 F.2d 717 (Em.App. 1982),

which rejected attempts to bar consideration of pass-on

consequences. Referring to Hanover Shoe and Illinois

Brick, the Court stated:

“The policies underlying those cases are largely in-

applicable to enforcement actions by the government,

and restitutionary relief by its nature does not have

some of the difficulties which arise in actions for

damages.

“In an enforcement action, there is no danger that

the incentive to enforce the law will be reduced by

permitting indirect purchasers to recover.”

499 F.Supp. at 884.

The Court would also note that the fundamental dif-

ference in and independence of the 209 and 210 remedies

were recognized by TECA in Bulzan v. Atlantic Richfield

Co., 620 F.2d 278 (Em. App. 1980).

The first purchasers have also raised the spectre of

potential double liability if pass through is allowed and

they are then subject to a private enforcement action

under Section 210. It has been recognized, however, that

both private and public remedies may be applied to the

same violation. Bulzan v. Atlantic Richfield Co., supra.

78a

In Bulzan, TECA noted a number of solutions to the

multiple liability problem, stating that one solution is

adjudication of a liability action under Section 210 “to

take into account a prior or subsequent” restitution

award. Bulzan, at 283-284. The spectre of double liabil-

ity was similarly dispelled in U.S. Oil Co., Inc. v. Koch

Refining, 518 F.Supp. 957 (E.D. Wis. 1981); Martin

Service v. Koch Refining Co., Unpub. No. 81-1844 (E.D.

Ill., Oct. 18, 1982); Ray L. Hunt v. Department of

Energy, Unpub. No. CA-3-78-02440-W (N.D. Tex. July

25, 1983).

Since considerations of equity are so vital in restitu-

tion, the Court must note that allowing first purchasers

to retain all of the overcharges, particularly in the ab-

sence of a factual showing that they did not pass on

some or all of the overcharges, would not be an equitable

result. This is particularly true when the first purchas-

ers’ proposed remedy would result in most of the over-

charges being returned to plaintiffs in this action, who

were the parties responsible for and who attempted to

benefit from the overcharges in the first place. At this

stage of the proceedings, there are no facts to show that

this would not be an inequitable windfall to the first

purchasers or indicated refiners.

Having concluded that recovery is not limited to first

purchasers or the participants in the Entitlements Pro-

gram, the Court must now consider whether it is clearly

impossible to ascertain with particularity the parties

that bore the burden of the overcharges. The States

argue that such a task is clearly impossible and, relying

on Judge Flannery’s opinion in United States v. Exxon,

supra, contend that the States should receive the escrow

fund for use in programs aiding energy consumers.

The Court tends to agree with the States and with

Judge Flannery that it is likely that the ultimate con-

sumers of petroleum products bore the brunt of these

overcharges and that it will be impossible to determine

79a

otherwise. If this is the case, the Court believes that

the equitable goals of restitution would mandate distribu-

tion to either the state governments or the federal

government for use in programs designed to aid energy

consumers. Such a distribution would be akin to the cy

pres doctrine in the legal field of charitable trusts where,

when it is impossible to carry out the specific intent of

the testator, courts dispose of the funds in the “next

best” manner. Such a doctrine has been extended to the

distribution of funds in class action and overcharge cases

and, where it is impossible to specifically identify the

proper claimants, allows the funds to be used in a man-

ner designed to benefit the claimants as a class. See

Note, Collecting Overcharges from the Oil Companies:

The Department of Energy’s Restitutionary Obligation,

32 Stan.L.Rev. 1039 (1980).

This approach was most notably applied in West Vir-

ginta v. Chas. Pfizer & Co., 314 F.Supp. 710 (S.D.N.Y.

1970); aff'd., 440 F.2d 1079 (2nd Cir 1970), cert. de-

nied, 404 U.S. 871, 92 S.Ct. 81, 30 L.Ed.2d 115 (1971).

This was a nationwide antitrust class action against drug

companies accused of price fixing brought by 37 states on

behalf of consumers. Pursuant to a court-approved set-

tlement, a fund of 37 million dollars was administered

for refunds to individual consumers, but application of a

claim procedure still left 32 million dollars in the fund.

This was distributed to states for use in public health

programs. A similar rationale underlay Judge Flan-

nery’s remedial action in United States v. Exxon, supra,

in which the overcharges were placed in an escrow ac-

count for distribution to the states for use in energy con-

servation programs.

Likewise, a direct refund to the United States treasury

would serve equitable and restituticuary goals. While

such a remedy would not aid energy consumers as di-

rectly as refunded to the states for use in energy pro-

grams, it would have certain advantages. It would in-

80a

volve virtually no administrative expense and would

benefit the public at large by increasing federal revenues.

Since mobile transportation is an all-encompassing way

of life in our nation, those injured may well be the pub-

lic at large. Hence such a distribution would probably

serve the purpose of aiding the injured party. It would

also, of course, fulfill the restitutionary goal of requiring

plaintiffs to disgorge their judicially-determined illegal

gains. See Note, Refunding Overcharges Under the

Emergency Petroleum Allocation Act: The Evolution of

a Compensatory Obligation, 79 Mich.L.Rev. 1454, 1473

(1981).

The Court reaches no conclusion as to what remedy

would be the most efficacious or equitable, but merely

points out that equitable remedies do exist in the ab-

sence of proof as to the particulars of the burden of the

overcharges. The Court believes, however, that an at-

tempt must be made to determine if particular harm

can be shown and that Judge Flannery’s resolution in

Exxon was premature. The Court believes this approach

is required by TECA in light of Citronelle-Mobile

Gathering Co. v. Edwards, supra, where the Court

concluded :

“The Government has a duty to try to ascertain

those overcharges, and refund them, with interest,

from the restitutionary funds.”

669 F.2d at 723.

The Court would note that it has before it no facts at

this time which could establish that it is impossible to

identify at least some of the injuries caused by the over-

charges. For the Court to conclude that impossibility at

this time would be a too-hurried retreat from the objec-

tive of restitution to most nearly restore the status quo

and return to those overcharged the amount of their loss.

Having reached that conclusion, the Court must reject

the request of the States for immediate distribution to

8la

them. The Court has thus rejected various claims for

immediate distribution and concluded that an attempt

must be made to identify those harmed by the over-

charges. The basic question remaining is whether this

issue should be referred for fact-finding to the OHA of

the DOE.

Where the claim before the Court requires the resolu-

tion of issues which, under a regulatory scheme, are

placed within the purview of an administrative agency,

the doctrine of primary jurisdiction may be applied to

suspend the judicial process pending referral of such an

issue to the administrative agency. United States v.

Western Pacific R.R. Co., 352 U.S. 59, 77 S.Ct. 161, 165,

1 L.Ed.2d 126 (1956). In the Western Pacific case, the

Supreme Court noted:

“Ti]n cases raising issues of fact not within the con-

ventional expertise of judges or cases requiring the

exercise of administrative discretion, agencies cre-

ated by Congress for regulating the subject matter

should not be passed over.”

77 S.Ct. at 165.

The Supreme Court has empasized that referral is use-

ful when uniformity and consistency is important and

where technical questions of fact within the expertise

and the experience of the agency exist. Nader v. Al-

legheny Airlines, Inc., 426 U.S. 290, 96 S.Ct. 1978, 48

L.Ed.2d 643 (1976). Referral is also desirable when one

compares the flexibility or agency procedures with the

rigidity too often characteristic of court procedures.

Sunflower Electric Coop. v. Kansas Power & Light Co.,

603 F.2d 791, 795 (10th Cir. 1979). The doctrine is best

summarized in fn. 14 of Columbus Gas Transmission v.

Allied Chemical Corp., 652 F.2d 503 (5th Cir. 1981),

wherein it is stated at 519:

“It is a discretionary tool of the courts, a flexible

concept to integrate the regulatory functions of agen-

82a

cies into the judicial decision making process by

having agencies pass in the first instance on tech-

nical questions of fact uniquely within the agency’s

expertise and experience, or in cases where referral

is necessary to secure uniformity and consistency in

the regulation of business, such as issues requiring

the exercise of administrative discretion.”

In the Court’s view, the tracing of overcharges in-

volves complicated and technical questions of fact, com-

pounded by the impact of regulatory phenomena such as

the Entitlements Program and the “banking” of costs.

The OHA has developed procedures for refund claims in

overcharge cases and is better equipped than the Court

to make preliminary findings concerning the particular

impact of overcharges on various parties.

Opponents of referral have pointed to the rather rocky

beginning OHA experienced in developing refund proce-

dures, but it appears that OHA has now made significant

progress in implementing such procedures. See Office of

Enforcement, 9 DOE { 82,521 (hereinafter Alkek); Of-

fice of Enforcement, 9 DOE {982,553 (hereinafter

Adams), which show that OHA is progressing with large

refund proceedings. The agency has established a mecha-

nism for considering applications for refunds, known as

Subpart V procedures.

The Court believes that the large number of technical

questions involved in attempting to determine the alloca-

tion of the burden of overcharges in the thicket of the

regulatory scheme could more efficiently be addressed be-

fore the OHA. The Court does share the concern of the

parties who have noted that OHA has not been as effi-

cient at handling claims as might be hoped. The Court

will therefore retain jurisdiction over this case and re-

quire regular progress reports from the Department on

its handling of the referred matters in this case.

The Court is also aware of the concern of some parties

of DOE bias in this case, and notes that the Department

83a

has not taken a position on what the final disposition of

the escrowed funds should be. Positions of the DOE in

other actions concern some parties. The Court em-

phasizes that he is referring to the DOE only the factual

question concerning the particularized impact of the over-

charges. The Court is specifically retaining jurisdiction

and will make the final determination of the disposition

of the funds. The Court, not the DOE, will decide where

the funds go. The Court does believe, however, that the

OHA’s claim process and DOE’s acquired expertise, will

assist the Court in developing the facts needed for an

equitable disposition of the funds.

The Court notes that it can retain jurisdiction of this

matter while referring only limited factual questions to

the agency. See Israel v. Barter Laboratories, 466 F.2d

272 (D.C.Cir. 1972) ; Danville Tobacco. Assoc. v. Bryant-

Buckner Associates, Inc., 383 F.2d 202 (4th Cir. 1964).

The Court is retaining jurisdiction of this action, and is

merely suspending its consideration of the issues in this

case in order to allow OHA to attempt to determine with

particularity the tracing and impact of the overcharges

or any portion of them in this case.

The Court is therefore referring to the Office of Hear-

ing and Appeals of the Department of Energy the task

of attempting to determine what parties bore the cost of

the overcharges and in what amounts. The Court will

also welcome the views of the OHA on how restitution

can best be achieved in this case. The Court, however,

is retaining jurisdiction over both this action and the

escrow fund. No determination of restitution nor payout

from the escrow fund may be ordered by the OHA, as

such matters remain within the province of this Court.

The Court also orders OHA to make an interim report

to the Court within six months of the date of this order,

and a final report to the Court within one year from the

date of this order, regarding the extent of its progress

84a

in determining the questions referred. The Court real-

izes that these matters are complex and that consider-

able time may well be needed for OHA to complete its

assigned task. Nevertheless, the Court would expect sub-

stantial progress in one year, and emphasizes that this

is MDL litigation deserving the utmost expedition. If

substantial progress is not made, OHA is ordered to pro-

vide detailed explanation of why progress has been lack-

ing. A lack of progress and the reasons therefore may

indicate to the Court that the process is futile and may

require the Court to take equitable action as noted else-

where in this opinion. On the other hand, the Court may

determine that more time and a greater effort on the

part of OHA is all that is required. These issues will be

explored by the Court after receipt of OHA’s reports.

IT IS THEREFORE ORDERED AND ADJUDGED

that the Department of Energy’s motion to refer is

granted, with the following conditions:

1. This Court retains jurisdiction over this action

and over the escrow fund. All decisions concern-

ing restitution and payout from the fund are

reserved to this Court for judicial resolution.

2. The Department of Energy’s Office of Hearings

and Appeals is ordered to conduct factfinding

pursuant to its regulatory process concerning the

particularized tracing and impact of the over-

charges at issue in this case. The DOE is or-

dered to make an interim report to this Court

within six months of the filing of this order, and

a final report within one year from the date of

this order, concerning its progress in such fact-

finding.

3. All parties with claims on the escrow fund in

this case shall submit specific proof thereof to

the OHA consistent with the regulatory process

established by that agency.

85a

4. The Court will suspend its consideration of this

action, pending OHA’s reports to this Court, or

until further order of the Court. The Court will

hold in abeyance all pending motions unti! that

time, including motions to intervene or to certify

class actions.

IT IS FURTHER ORDERED, for the reasons set

forth in the foregoing memorandum, that the motions of

Total Petroleum and Farmland Industries for immedi-

ate distribution from the escrow fund are hereby denied.

On Motion to Certify Constitutional Issues

- On September 13, 1983, this Court referred the issue

of the appropriate remedy in this multidistrict litigation

to the Office of Hearings and Appeals [OHA] of the De-

partment of Energy [DOE], with instructions to the

OHA to report in March and September of 1984 on its

progress. The relief afforded to the Court by this re-

ferral has, however, been short-lived. The case is once

more before the Court on a hotly contested and heavily

briefed motion. The plaintiffs, various oil producers,

have moved this Court to certify three constitutional

issues concerning one house legislative vetoes in the

Emergency Petroleum Allocation Act [EPAA] and the

Energy Policy and Conservation Act, [EPCA] to the

Temporary Emergency Court of Appeals [TECA] for

consideration in light of the United States Supreme

Court’s recent declaration that one-house legislative

vetoes are unconstitutional, see Immigration and Natu-

ralization Service v. Chada, — U.S. —, 103 S.Ct. 2764,

77 L.Ed2d 317 (1983). Numerous parties, including the

DOE, intervening states, and intervening purchasers,

hereinafter collectively referred to as the defendants, are

bitterly opposed to any certification. For the reasons

that follow, this Court believes that substantial consti-

tutional issues exist in this case, and that those constitu-

tional issues must be certified to TECA, see § 211(c) of

the Economic Stabilization Act of 1970, 12 U.S.C. § 1904

note.

86a

I. Brief Factual and Procedural Background

This action was originally brought by an individual

plaintiff to enjoin the DOE and its predecessor, the Fed-

eral Energy Administration, from enforcing Ruling

1974-29, which concerned low-production oil wells com-

monly referred to as “stripper wells.” This Court en-

joined enforcement of the Ruling, but required the plain-

tiffs to deposit into an escrow account the difference be-

tween the higher stripper well price the injunction per-

mitted them to receive and the lower controlled crude oil

price they would otherwise have received. This escrow

fund currently contains approximately eight hundred

million dollars.

Unfortunately, this litigation has tread a rocky road

to arrive at the present motion. First, this Court con-

cluded that Ruling 1974-29 was void, Energy Reserves

Group, Inc. v. Federal Energy Administration, 447 F.

Supp. 1135 (D.Kan.1978). This conclusion was reversed

by TECA in a two-to-one decision, and the case was

remanded for trial, Energy Reserves Group, Inc. v. The

Department of Energy, 589 F.2d 1082 (Emp.App.1978).

Numerous other cases*concerning the same issue were

collected around the country and consolidated here as

multidistrict litigation in June of 1979, In re The De-

partment of Energy Stripper Well Exemption Litigation,

472 F.Supp. 1282 (Jud.Pan.Mult.Lit.1979). After a

brief second sojourn at TECA in which the DOE un-

successfully attempted to obtain a writ of mandamus

against this Court, Duncan v. Theis, Chief Judge, 613

F.2d 305 (Em.App. 1979), the case was finally tried

in early 1981.

After the trial, this Court concluded that Rule 1974-29

was arbitrary, capricious, and contrary to the expressed

intent of Congress, In re The Department of Energy

Stripper Well Exemption Litigation, 520 F.Supp. 1232

(D.Kan.1981). The case was then taken to TECA for

the third time, and TECA once again reversed, In re

87a

the Department of Energy Stripper Well Exemption

Litigation, 690 F.2d 1375 (Em.App.1982), cert. denied,

— US. —, 103 S.Ct. 763, 74 L.Ed.2d 978 (1983). The

final section of TECA’s opinion reads as follows:

Conclusion

In summary, we find:

1) The legislative history of the stripper well ex-

emption amply supports the DOE’s position that

injection wells were not intended by Congress to

be included in the well count;

2) Ruling 1974-29 is not beyond the authority of

the DOE granted by the controlling statutory

provisions;

3) Our prior decision in Energy Reserves I, Duncan

v. Theis and Wiggins have correctly decided that

Ruling 1974-29 is a reasonable interpretation of

the applicable statutes and regulations; and

4) The stripper well regulations, as interpreted by

Ruling 1974-29, are neither arbitrary nor capri-

cious.

For all these reasons, the decision of the district

court is reversed, and these consolidated cases are

remanded to the district court with instructions to

enter judgment for the [defendants].

Id. at 1892. In accordance with TECA’s instructions,

judgment was entered for the DOE on February 14,

1983, see Dk. No. 282, in the following words:

IT IS THEREFORE ORDERED that judgment is

hereby rendered in favor of defendants and against

plaintiffs, in accordance with the mandate of the

Temporary Emergency Court of Appeals filed herein

on September 20, 1982.

Dk. No. 282, at 2. As the Court stated in its Order of

September 13, 1983.

88a

The remaining task is the ajyropriate dispensation

of the escrowed funds—in effect a monumental inter-

pleader action with potential classes and sub-classes.

578 F.Supp. at 589.

After hearing from the various parties and inter-

venors at extraordinary length, this Court concluded that

the most expeditious method of proceeding was for this

Court to retain jurisdiction over both the case and the

escrowed funds while referring the factfinding as to who

bore the brunt of the overcharges to the OHA, 578 F.

Supp. at 596-97.

On November 14, 1983, the plaintiffs moved to certify

three constitutional issues to TECA, to vacate the re-

ferral of factfinding to the OHA, and to release the

escrowed funds. The three constitutional issues are

stated by the plaintiffs as follows:

1) Whether the Emergency Petroleum Allocation

Act, as amended, must be declared unconstitutional,

ab initio, because it contains an invalid and in-

severable one-house legislative veto provision that

was twice utilized to the detriment of plaintiffs.

2) Whether the Oil Pricing Policy added as section

8 to the Emergency Petroleum Allocation Act by sec-

tion 401 of the Energy Policy and Conservation Act

must be declared unconstitutional, ab initio, because

it contains three invalid and inseverable one-house

legislative veto provisions and imposed price controls

to the detriment of plaintiffs.

3) Whether MDL No. 378 must be dismissed for

lack of subject matter jurisdiction in view of the

constitutional invalidity of the Emergency Petro-

leum Allocation Act as amended, and section 401 of

the Energy Policy and Conservation Act.

Memorandum in Support of Plaintiffs’ Motion, Dk. No.

520, at 1-2. The Court heard extensive oral argument on

89a

the motions on Monday, January 16, 1984, and is now

ready to rule.

II. Preliminary Issues

No one disputes that the Chada decision declared-one-

house legislative vetoes to be an unconstitutional in-

fringement of the Article I requirements of bicameralism

and presentment. Instead, the defendants present four

essentially procedural arguments in support of their basic

assumption that the plaintiffs cannot raise their con-

stitutional challenge at this juncture. The defendants

assert that: (1) the motion to certify the constitutional

issues is inexcusably tardy; (2) the plaintiffs are with-

out standing to raise the constitutional challenge; (3) the

legislative vetoes in the EPAA and EPCA are, in any

event, severable from the remainder of the acts; and

(4) retroactive application of Chada would be inequi-

table. The Court will deal with these assertions in the

order listed.

(1) Timeliness

The defendants first argue that the plaintiffs’ motion

is inexcusably tardy because judgment has already been

entered in this case, see Dk. No. 282, and because Rule 60

of the Federal Rules of Civil Procedure provides no

mechanism whereby that judgment may be modified.

This argument proceeds from the erroneous assumption

that a final judgment has been entered in this case.

Rule 54(b) of the Federal Rules of Civil Procedure

explicitly states that

When more than one claim for relief is presented in

an action, whether as a claim, counterclaim, cross-

claim, or third-party claim, or when multiple parties

are involved, the court may direct the entry of a

final judgment as to one or more but fewer than all

of the claims or parties only upon an express deter-

mination that there is no just reason for delay and

90a

upon an express direction for the entry of judgment.

In the absence of such determination and direction,

any order or other form of decision, however desig-

nated, which adjudicates fewer than all the claims

or the rights and liabilities of fewer than all the

parties shall not terminate the action as to any of

the claims or parties, and the order or other form

of decision is subject to revision at any time before

the entry of judgment adjudicating all the claims

and the rights and liabilities of all of the parties.

The judgment entered on February 14, 1983, Dk. No.

282, is on its face not a final order. The rights and lia-

bilities of the plaintiffs, the defendants, and the numer-

ous intervenors simply were not finally adjudicated by

that order. No disposition of the huge escrow fund was

made, and all parties still maintain their entitlement to

that fund. The Court, in fact unequivocally expressed its

understanding that no final judgment was entered when

it expressly retained jurisdiction over the case and the

escrow fund while referring the factfinding mission to

the OHA. Such retention would have been nonsensical

had a final judgment adjudicating all the claims and the

rights and liabilities of all of the parties been entered

seven months earlier. Additionally, the substantial fact-

finding presently being conducted by the OHA and the

difficult question remaining for the Court of who gets the

money make any notion of finality in this case untenable

at this time. Because the question of who gets the money

is unresolved, and because a decision that the EPAA and

EPCA are unconstitutional could have a major impact

on the resolution of that question, this Court believes

that the plaintiffs’ motion to certify the constitutional

issues is timely.

(2) Standing

The essence of the standing challenge is the supposed

lack of injury from an exercise of the concededly uncon-

9la

stitutional one-house vetoes. The short answer to this

argument is that the plaintiffs allege that the EPAA and

EPCA must be declared void ab initio because of the one-

house vetoes, and that the money presently in the escrow

fund must, therefore, be restored to the plaintiffs because

it was exacted from them under unconstitutional acts.

Clearly, the exaction of large sums of money under un-

constitutional acts is an injury, that injury is traceable

to those acts, and that injury could be redressed by a

declaration that the acts are unconstitutional and that

the money should be returned to the plaintiffs, see, ¢.g.,

Valley Forge Christian College v. Americans United for

Separation of Church and State, 454 U.S. 464, 102 S.Ct.

752, 70 L.Ed.2d 700 (1982). This Court believes that the

plaintiffs have a sufficient “personal stake in the out-

come of this controversy to warrant [their] invocation

of federal court jurisdiction and to justify exercise of

the Court’s remedial powers on [their] behalf,” Arling-

ton Heights v. Metropolitan Housing Development Corp.,

429 U.S. 252, 260-61, 97 S.Ct. 555, 560-61, 50 L.Ed.2d

450 (1977); Holly Sugar Corp. v. Goshen City Coopera-

tive Beet Growers Association, 72E F.2d 564, 567-68

(10th Cir. 1984). The plaintiffs therefore have standing

to assert their constitutional challenge.

(3) and (4) Severability and Retroactivity

The Court will consider these two assertions together

because a similar analysis applies to both. As a pre-

liminary matter, it must be remembered that this Court

lacks jurisdiction to determine the constitutional validity

of any provision of the EPAA or EPCA, or of the regu-

lations under those Acts, inasmuch as exclusive jurisdic-

tion over those issues is vested in TECA and the United

States Supreme Court by way of appeal, see § 211(g) of

the Economic Stabilization Act of 1970, 12 U.S.C. § 1904

note. If any substantial constitutional issue exists, it

must be certified to TECA, see id. § 211(c).

92a

These restrictions on this Court’s jurisdiction and

power are relevant to the defendants’ final two asser-

tions because those assertions invite this Court to reach

the merits of the constitutional challenge, albeit in-

directly. Were this Court to conclude that the concededly

unconstitutional one-house vetoes are severable from the

remainder of the Acts, the Court would also be conclud-

ing that the remainder of the Acts passes constitutional

muster, despite the plaintiffs’ vigorous assertion that the

Acts must be declared void ab initio. Likewise, a deci-

sion that Chada will not be applied retroactively to this

litigation would be tantamount to a delaration that the

price controls are constitutionally sound enough to be

enforced by the final judgment this Court must even-

tually enter disbursing the escrowed funds. Both of these

inquiries are so firmly intertwined with the merits of

the constitutional challenge as to be inseverable from it

and, therefore, outside this Court’s jurisdiction and

power to hear.

The parties have briefed these issues with their cus-

tomary professionalism and attention to detail, and their

lengthy citations to the case law and the legislative his-

tories of the Acts have demonstrated that each side has

a substantial argument and that the question is indeed

a close one. This demonstration has helped to convince

this Court that the constitutional issues raised by the

plaintiffs are substantial, and that those isssue must,

therefore, be certified to TECA.

III. Certification

IT IS THEREFORE ORDERED that the three con-

stitutional issues raised by the plaintiffs and set out

verbatim in this Memorandum and Order, supra p. 599,

be certified to the Temporary Emergency Court of

Appeals.

IT IS FURTHER ORDERED that the plaintiffs’ mo-

tions to vacate the referral of factfinding to the OHA

93a

and to release the escrowed funds be held in abeyance

pending TECA’s resolution of the constitutional issues.

IT IS FURTHER ORDERED that OHA continue un.

interrupted with its factfinding mission.

IT IS FURTHER ORDERED that this Court retain

jurisdiction over this case and over the escrowed fund to

the maximum extent consistent with the certification of

constitutional issues to TECA.

94a,

APPENDIX D

IN THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF KANSAS

ENERGY RESERVES GROUP, INC. and

SUBURBAN PROPANE GAS CORPORATION,

Plaintiffs,

vs.

FEDERAL ENERGY ADMINISTRATION and

JOHN F. O’LEaARY, Administrator,

Federal Energy Administration,

Defendants.

[Filed Jun. 10, 1977]

PRELIMINARY INJUNCTION

On this 26th day of May, 1977, this matter comes on

for hearing on the motion of the plaintiffs herein for a

Preliminary Injunction. The plaintiffs appear by Joseph

W. Kennedy and Robert I. Guenthner of Morris, Laing,

Evans, Brock & Kennedy, Chartered, and the plaintiff

Energy Reserves Group, Inc. also appears by Paul B.

Swartz of Martin, Pringle, Schell & Fair. The defend-

ants appear by Jon K. Sargent, Deputy United States

Attorney for the District of Kansas; Robert Heiss, Office

of General Counsel, Federal Energy Administration; and

Linda L. Pence, United States Department of Justice.

THEREUPON, the matter proceeds to hearing and

trial and the plaintiffs present their evidence and rest.

The defendants offer no evidence.

95a

THEREUPON, the Court, after considering the evi-

dence introduced at the hearing, the Affidavits in support

of the Motion for Preliminary Injunction previously filed

and the arguments and statements of counsel, makes the

following findings of fact and conclusions of law:

1, The Court finds that the plaintiffs have made a

substantial showing of irreparable damage which would

result to them in the event the Motion for Preliminary

Injunction is denied.

2. The Court further finds that this action is not friv-

olous, that there are serious questions raised by the plain-

tiffs’ Complaint herein, and that the plaintiffs have dem-

onstrated a reasonable probability of success on the

merits of this action.

3. The Court further finds that the importance of the

rights asserted by the plaintiff herein predominate over

the importance of the acts sought to be enjoined in that

the substantial pecuniary loss to the plaintiffs if the in-

junction is denied outweighs the little, if any, adverse

impact on the public interest herein. In fact, the Court

finds that it is in the public interest to have the validity

of the ruling in question in this case judicially determined

and that both the plaintiffs and defendants desire to have

the judicial determination concerning the validity of such

ruling.

4. The Court further finds that the interests of all

parties can be protected during the pendency of this ac-

tion by appropriate orders providing for the refund of

any later determined overcharges for the price of crude

oil. Because of this the Court finds that the entry of a

preliminary injunction will in no way damage the de-

fendants or the public interest and will serve to protect

the rights of the plaintiffs while this matter is in litiga-

tion.

IT IS THEREFORE BY THE COURT CONSID-

ERED, ORDERED, ADJUDGED AND DECREED that

96a

the defendants, their officers, agents, servants, employees

and attorneys are hereby restrained and enjoined, pend-

ing the final determination of this action, from taking

any action whatsoever to enforce, or attempting to en-

force, any final order of the Federal Energy Administra-

tion against the plaintiffs herein, which final order is

based on alleged violations of Federal Energy Adminis-

tration Regulations construed in accordance with FEA

Ruling 1974-29.

IT IS FURTHER ORDERED that the defendants,

their officers, agents, servants, employees and attorneys

are hereby restrained and enjoined from enforcing the

civil and criminal penalty provisions of FEA regulation

§ 205.203 against plaintiffs to the extent that plaintiffs

would otherwise be subject to such penalties as a result

of their certification during the pendency of this action

of oil properties operated by them as stripper well prop-

erties based on the counting of injection wells located on

such properties in the computation of average daily pro-

duction if it is ultimately determined that such counting

of injection wells is improper.

IT IS FURTHER ORDERED that the plaintiffs shall

pay, or cause to be paid, to the Clerk of the United States

District Court for the District of Kansas, at Wichita,

Kansas, the difference between the price received for

crude oil sold pursaunt to any and all certification of a

property as a stripper well property and the price for

which such crude oil would have been sold had the same

been sold pursuant to a certification of the property as a

non-stripper property.

IT IS FURTHER ORDERED that the Clerk of this

Court invest any and all funds so received in interest

bearing short-term obligations of the United States Gov-

ernment until the further order of this Court.

IT IS FURTHER ORDERED that, in the event funds

so paid to the Clerk of this Court, are later determined

—

97a

to be subject to refund to the purchaser of the crude oil,

then at that time said funds shall be paid directly to the

purchaser of the crude oil together with all accrued in-

terest thereon, in full satisfaction and discharge of the

plaintiffs’ refund obligations pursuant to appropriate

regulations of the Federal Energy Administration.

IT IS FURTHER ORDERED that the foregoing pro-

vision concerning payment of funds to the Clerk of this

Court fully satisfies the requirement for security for a

preliminary injunction as provided in Rule 65(c) of the

Federal Rules of Civil Procedure.

IT IS BY THE COURT SO ORDERED.

/s/ Judge Frank Theis

APPROVED:

_ /8/ Joseph W. Kennedy

JOSEPH W. KENNEDY of

Morris, Laing, Evans, Brock

& Kennedy, Chartered

Suite 430, 200 West Douglas

Wichita, Kansas 67202

One of the Attorneys for Plaintiffs.

/s/ Linda L. Pence

LINDA L. PENCE (Approved As To Form)

United States Department of Justice

Washington, D.C.

One of Attorneys for Defendants.

98a

APPENDIX E

TEMPORARY EMERGENCY COURT OF APPEALS

Nos. 9-80, 9-81

GULF OIL CORPORATION,

Defendant-Appellant and

Cross-A ppellee,

Vv.

RICHARD W. DYKE, dba WESTERN STATIONS Co.,

COLVIN OIL COMPANY, and F.O. FLETCHER, INC.,

dba FLETCHER OIL COMPANY,

Plaintiffs-A ppellees and

Cross-Appellants,

UNITED STATES OF AMERICA,

Intervenor.

Argued March 19, 1984

Decided April 17, 1984

Jack D. Fudge and Michael L. Hickok, McCutchen,

Black, Verleger & Shea, Los Angeles, Cal., on the brief

for appellant/cross-appellee.

John L. Schwabe and Neva T. Campbell, Schwabe,

Williamson, Wyatt, Moore & Roberts, Portland, Or., on

the brief for appellees/cross-appellants.

John R. Knight, Edward T. Cotham, Jr. and Bradley

Ford Stuebing, Gulf Oil Corporation, Houston, Tex., on

the brief for appellant/cross-appellee.

99a

Larry P. Ellsworth, Asst. General Counsel, David En-

gels and Marcia K. Sowles, Dept. of Energy, and Richard

K. Willard, Acting Asst. Atty. Gen., Anthony J. Stein-

meyer and Douglas Letter, Attys., Dept. of Justice,

Washington, D.C., on the brief for the United States.

William H. Bode, John E. Varnum and Tobey B.

Marzouk, Spriggs, Bode & Hollingsworth, Washington,

D.C., on the brief for amici curiae, Independent Oil and

Tire Co., Shepherd Brothers Service Stations, and U.S.

Oil Co., Inc.

John A. Evans, Marathon Petroleum Co., Findlay,

Ohio, William C. Streets and Gail F. Schulz, Mobil Oil

Corporation, Fairfax, Va., R. Bruce McLean, P.C., Daniel

Joseph, P.C., Warren E. Connelly, P.C., and David A.

Holzworth, Akin, Gump, Strauss, Hauer & Feld, Wash-

ington, D.C., on the brief for amici curiae, Marathon

Petroleum Co. and Mobil Oil Corp.

Before CHRISTENSEN, ESTES and ZIRPOLI, Judges.

ESTES, Judge:

This is an action for overcharges under § 210(b) of

the Economic Stabilization Act of 1970 (“ESA”), 12

U.S.C. § 1904 note, as incorporated in the Emergency

Petroleum Allocation Act (“EPAA”), 15 U.S.C. § 751

et seg. brought by Plaintiffs-Appellees and Cross-Appel-

lants Richard W. Dyke, dba Western Stations Co., Colvin

Oil Company, and F.O. Fletcher, Inc., dba Fletcher Oil

Company (hereinafter “Dyke” when referred to collec-

tively; “Richard W. Dyke” when referring to plaintiff

Dyke singularly), against Defendant-Appellant and Cross-

Appellee Gulf Oil Corporation (hereinafter (“Gulf”) .?

Gulf also filed a counterclaim for unpaid bills for gaso-

1 Independent Oil and Tire Co., Shepherd Brothers Service Sta-

tions and U.S. Oil Company, Inc. have filed a joint brief as Amici

Curiae on the prejudgment interest and attorneys’ fees questions

presented by this appeal.

100a

line in the sum of $728,753.78 against Richard W. Dyke

only,? which was not contested.* Dyke alleged that Gulf

overcharged it in sales of gasoline from Gulf to Dyke

between January 1974 and January 1977. An Amended

Judgment entered on September 12, 1983* in the United

States District Court for the District of Oregon was

awarded to plaintiffs against Gulf in amounts as follows:

Prejudgment Attorney’s

Overcharges _ Interest Fees

Richard W. Dyke, dba $1,264,555.22 $ 557,588.38 $385,500

Western Stations Co.

Colvin Oil Company 745,000.00 200,568.99 173,500

F.O. Fletcher, Inc.,dba 790,000.09 408,471.69 191,000

Fletcher OilCompany «=

$2,799,555.22 $1,166,629.06 $750,000

In addition +o the $4,716,184.28, total of the above sums,

the Amended Judgment also awarded costs and post-

judgment interest to plaintiffs at the rate of 10.58 per-

cent against Gulf. Gulf appeals from this judgment.

Dyke has filed a cross-appeal contending the district

court incorrectly computed the prejudgment interest

which Dyke was awarded.

In October of 1972, Gulf’s board of directors decided

to divest Gulf of all its marketing activities in its San

Francisco Retail Marketing District, which included

northern California, northern Nevada, Oregon and Wash-

ington. The decision to divest followed losses by Gulf

of $31.7 million in 1971 and $37 million in 1972 in the

Northwest.’ The passage of the EPAA, however, forced

2 Record at Vol. 1, Tab 2.

3 Record at Vol. 1, Tab 3, p. 1.

4 Record at Vol. 11, Tab 161. The Original Judgment entered

August 25, 1983 (Jd. at Tab 157) and first Amended Judgment

entered August 26, 1983 (Jd. at Tab 158) were set aside by Order

of September 2, 1983 (Jd. at Tab 160).

5 Findings of Fact and Conclusions of Law (“FFCL’”), Record

at Vol. 11, Tab 147, pp. 4-5.

oe enema

10la

Gulf to continue to supply its customers in the area and

to place its purchasers into classes which would main-

tain the customary price differentials in existence on

May 15, 1973.° Gulf continued to supply all of its jobber

customers in the area, but converted all of the branded

jobbers’ to unbranded jobbers on January 1, 1974. Be-

fore 1974, Gulf had supplied only one jobber in the dis-

trict on an unbranded basis.*

On May 15, 1973, Richard W. Dyke, Colvin, and

Fletcher all purchased gasoline from Gulf as resellers-

retailers as defined in 10 C.F.R. § 212.31. Gulf was a

refiner as defined in the same section. Richard W. Dyke

and Colvin were among those purchasers who were

branded jobbers on May 15, 1973 and converted to un-

branded jobbers on January 1, 1974.

The other jobbers in the district who were reclassified

from branded to unbranded on January 1, 1974, were

placed in the Armour class of purchaser to reflect their

new status. Richard W. Dyke and Colvin, however, were

given base prices reflecting those published in Platt’s

Oilgram for May 15, 1973 for Portland and Eugene,

Oregon and Seattle/Tacoma, Washington. Gulf reasoned

that its jobbers in Oregon and Washington comprised a

substantially different market from those in northern

California and should constitute a separate class with a

different base price. Gulf relied on the new item/new

market rule® to justify its use of Platt’s Oilgram in es-

610 C.F.R. § 212.

7 Gulf’s branded jobbers received free painting of service sta-

tions, hauling allowances and the privilege of honoring Gulf credit

cards. FFCL, supra, at 4. Dyke and Colvin were Gulf branded

jobbers before January 1, 1974. Id.

8FFCL, supra, at 5-6. The unbranded jobber was Armour Oil

Co., which purchased gasoline from Gulf’s northern California

terminals only. Id.

® FFCL, supra, at 11. The new item-new market rule, ~ F.R.

§ 212.111, allowed sellers to use a market price as the base price

102a

tablishing a base price for Richard W. Dyke and Colvin,

which is an exception to the rule that base prices must

correspond to a price actually charged the most similar

existing class on May 15, 1973."°

Richard W. Dyke filed a complaint on January 4,

1977 and ceased paying for gasoline received from Gulf

on December 16, 1976, yet continued to receive gasoline

without payment until January 28, 1977. Colvin’s com-

plaint was filed on October 11, 1977. Fletcher filed its

complaint on October 20, 1977. The three cases were

consolidated, with Richard W. Dyke proceeding to judg-

ment first. The decision and findings in Richard W.

Dyke were binding on Colvin and Fletcher.

The case was originally assigned to Chief Judge

Skopil."*. An interlocutory appeal was filed by the De-

partment of Energy (“DOE”) contesting their joinder

in the cases. The DOE was released from further par-

ticipation in the cases by this Court’s decision and man-

date and the district court order which followed.’* On

remand, new Chief Judge Burns granted a six-month

stay in the proceedings before Judge Owen M. Panner

was assigned to the cases in July, 1980." Judge Panner

lifted the stay on July 21, 1980."

for a product in certain instances rather than the price actually

charged the most similar class of purchasers on May 15, 1973. Gulf

later conceded that its use of the new item-new market rule was

improper. FFCL, supra, at 11.

© Pacific Supply Co-Op v. Shell Oil Co., 697 F.2d 1084 (Em.App.

1982).

11 FFCL, supra, at 12, fn. 2.

12 Record at Vol. 1, Tab 8, June 29, 1979; Record at Vol. 17, Tab

263, August 16, 1979. See, Dyke v. Gulf Oil Corp., 601 F.2d 557

(Em.App. 1979).

13 FFCL, supra, at 12, n. 2. Judge Panner began duty as U.S.

District Judge on March 24, 1980.

14 Record at Vol. 1, Tab 14.

103a

Trial before the court began on November 17, 1981.

The trial was conducted in stages with succeeding orders

entered as follows: 'n Phase 1, Gulf’s use of the Platt’s

Oilgram prices as base prices for the plaintiffs was held

improper. November 17, 1981; Record at Vol. 4, Tab

47. In Phase 2, the unbranded Armour class of pur-

chasers and its corresponding base price was held proper

for the plaintiffs. November 20, 1981; Record at Vol. 4,

Tab 49. In Phase 3, the method of calculating the over-

charges was decided, prejudgment interest was awarded

to the plaintiffs, and the selection of the appropriate

statute of limitations was made. January 20, 1982; Rec-

ord at Vol. 7, Tab 67. In Phase 4, plaintiff Fletcher was

held to be the real party in interest. April 15, 1982;

Record at Vol. 7, Tab 80. In Phase 5, attorney’s fees

were awarded the plaintiffs. May 27, 1982; Record at

Vol. 8, Tab 93.

The calculation of prejudgment interest was referred

to a magistrate on June 1, 1982." The magistrate en-

tered his Findings and Recommendations on September

9, 1982, and they were adopted by the district court on

October 26, 1982.% The district court entered its Find-

ings of Fact and Conclusions of Law on June 20, 1983 ”

and filed a separate opinion on the issue of attorney’s

fees on August 23, 1983.% 571 F.Supp. 780. The

Amended Judgment was entered on September 12, 1983."

Gulf filed its Notice of Appeal in this Court on October

6, 1983. Dyke filed its Notice of Cross-Appeal in this

Court on October 20, 1983.

® Record at Vol. 8, Tab 94.

© Record at Vol. 9, Tab 126; Vol. 10, Tab 129.

17 Record at Vol. 11, Tab 147.

*® Record at Vol. 11, Tab 155.

19 Record at Vol. 11, Tab 161.

104a

ISSUES

The issues on appeal, as stated by Gulf in its brief

filed November 14, 1983, are as follows:

1. Whether overcharges can be refunded under the

EPAA without any determination that sales exceeded the

“maximum allowable prices” permitted under the govern-

ing Refiner Price Rule;

2. Whether prejudgment interest can ever be awarded

on overcharge refunds under the EPAA;

8. If such prejudgment interest is ever recoverable,

whether it can be awarded where the amount of over-

charges to be refunded was unliquidated and became

certain only by trial;

4. Whether attorney’s fees may be awarded under the

EPAA where the overcharges were found to be uninten-

tional;

5. Whether attorney’s fees awardable under the EPAA

may substantially exceed those actually charged ;

6. Whether appellee Fletcher lacks standing as an in-

direct purchaser to sue Gulf for overcharges under the

EPAA;

7. Whether application of the two-year Washington

statute of limitations to Fletcher frustrates national

policy under the EPAA;

8. Whether the passing-on defense is available in this

EPAA case because all parties were subject to Federal

Price Regulations, and the trial court specifically quanti-

fied the amount of overcharges actually passed through;

and

9. Whether the trial court abused its discretion by

making a class of purchaser determination contrary to

105a

the Pretrial Order without considering evidence offered

in issue.”

Dyke states in its brief that the issue on the cross-

appeal is: Whether the Trial Court erred in its calcula-

tion of prejudgment interest.**

Gulf’s Motion to Dismiss

Gulf, without raising the question in the lower court,

was given leave to file an untimely Motion to Dismiss

the Cross Appeal of Dyke, which challenges the subject-

matter jurisdiction of this Court following the recent

Supreme Court decision in I.N.S. v. Chadha, —— USS.

—, 103 S.Ct. 2764, 77 L.Ed.2d 317 (1983). Dyke has

opposed the motion and contended that the Chadha de-

cision did not invalidate the statutes. .The United States

has filed a motion to intervene on the question of the

constitutionality of the statutes pursuant to 28 U.S.C.

§ 2403 and has also argued that the statutes remain

valid. Gulf contends that because the applicable stat-

utes granting jurisdiction to this Court contain insever-

able and unconstitutional legislative veto provisions, the

legislation is void and this Court has no jurisdiction over

the cross-appeal. It has been determined that Gulf’s mo-

tion raises a jurisdictional question which we must de-

cide.” After examination of the statutes, their legisla-

2» Brief of Defendant-Appellant and Cross-Appellee Gulf (“Gulf’s

Br.”) at 3-4.

21 Brief of Plaintiffs-Appellees and Cross-Appellants Dyke, et al.

(“Dyke's Br.”) at 1.

22 Marathon Petroleum Company and Mobil Oil Corporation have

filed a joint brief as Amici Curiae in support of Gulf’s position

that this case should be dismissed for lack of subject-matter

jurisdiction.

28 Gulf has placed itself in the anomalous position of moving to

dismiss only Dyke’s cross-appeal on the basis that the statutory

authority for the cross-appeal is unconstitutional. Since Gulf’s

appeal also depends on the validity of the EPAA and EPCA, any

106a

tive histories, prior decisions and the arguments of coun-

sel, we conclude that the unconstitutional legislative

vetoes contained in the EPAA and EPCA [Energy Policy

and Conservation Act] are severable, leaving the re-

maining sections of the legislation intact and operable,

including the sections conferring jurisdiction of this ap-

peal upon this Court.

Neither the EPAA nor the EPCA contains a sever-

ability clause.“ The absence of such a clause, however, is

holding of this Court dismissing the cross-appeal because of the

unconstitutionality of the EPAA or EPCA would also necessitate

the dismissal of Gulf’s appeal. Dyke has maintained that the consti-

tutional issues raised by Gulf are not in reality directed at the

subject-matter jurisdiction of this Court, but rather at the decision

on the merits of the District Court below. See, Memorandum filed

by Dyke, et al., December 28, 1983 and Memorandum filed by Dyke,

et al., January 10, 1984. Dyke maintains that such an argument

must first be raised in the District Court below. See, United States

v. Empire Gas Corp., 547 F.2d 1147, 1153 (Em.App. 1976), cert.

denied, 430 U.S. 915, 97 S.Ct. 1826, 51 L.Ed.2d 592. Gulf’s motion

does have such bearing on the subject-matter jurisdiction and the

very viability of this Court as to mandate consideration here. We

have a “duty to observe questions relating to jurisdiction whenever

they may appear.” McWhirter Distributing Co. v. Texaco, Inc., 668

F.2d 511, 525 n. 22 (Em.App. 1981), citing Condor Operating Co.

v. Sawhill, 514 F.2d 351, 354 (Em.App.), cert. denied, 421 U.S. 976,

95 S.Ct. 1975, 44 L.Ed.2d 467 (1975). See also, Exxon Corp. v.

F.E.A., 516 F.2d 1897 (Em.App. 1975).

2 However, the ESA, which was the precursor of the EPAA

and EPCA, does contain a severability clause at Section 220. We

are also most persuaded by the language of Section 211(g) of the

ESA that Congress intended this Court to sever unconstitutional

portions of the statutes and leave the remainder intact: “(T)he

Temporary Emergency Court of Appeals, and the Supreme Court

upon review of judgments and orders of the Temporary Emergency

Court of Appeals, shall have exclusive jurisdiction to determine the

constitutional validity of any provision of this title or of any regula-

tion issued under this title.” (Emphasis Added). This Court was

given full authority to determine the unconstitutionality of one

provision of a statute without the requirement of invalidating the

whole statute as a result.

a TT ene

107a

in no way dispositive of the question of severability.

E.E.0.C. v. Hernando Bank, Inc., 724 F.2d 1188, 1190

(5th Cir. 1984). Indeed, “the ultimate determination of

severability will rarely turn on the presence or absence

of such a clause.” United States v. Jackson, 390 U.S. 570,

585 n. 27, 88 S.Ct. 1209, 1218, 20 L.Ed.2d 188 (1968).

The proper test is that “[u]nless it is evident that the

legislature would not have enacted those provisions which

are within its power, independently of that which is not,

the invalid part may be dropped if what is left is fully

operative as a law.” Buckley v. Valeo, 424 U.S. 1, 108,

96 S.Ct. 612, 677, 46 L.Ed.2d 659 (1976), quoting

Champlin Refining Co. v. Corporation Commission, 286

U.S. 210, 234, 52 S.Ct. 559, 565, 76 L.Ed.2d 1062 (1932).

In order to determine whether Congress would have

enacted the remainder of the EPAA and EPCA had it

known that the one-house veto provisions were unconsti-

tutional, we must examine the language and legislative

history of the Acts. E.E£.0.C. v. Hernando Bank, supra,

at 1190; Muller Optical Co. v. E.E.0.C., 574 F.Supp.

946 (W.D.Tenn. 1983).

“Congressional intent and purpose are best determined

by an analysis of the language of the statute in question.”

E.E.0.C. v. Hernando Bank, supra, at 1190.

The stated purpose of the EPAA is as follows:

Sec. 2...—

(b) The purpose of this Act is to grant to the

President of the United States and direct him to

exercise specific temporary authority to deal with

shortages of crude oil, residual fuel oil, and refined

petroleum products or dislocations in their national

distribution system. The authority granted under

this Act shall be exercised for the purpose of mini-

mizing the adverse impacts of such shortages or dis-

locations on the American people and the domestic

economy.

108a

The EPAA also states that it was enacted in the midst |

of circumstances which “constitute a national crisis which

is a threat to the public health, safety, and welfare,”

EPAA § 2(a) (3), and that its purpose is to provide for

“equitable distribution of crude oil, residual fuel oil, and

refined petroleum products at equitable prices among all

. . . sectors of the petroleum industry.” EPAA, as

amended, 15 U.S.C. § 753(b) (1) (F) quoted in United

States v. Heller, 726 F.2d 756 (Em.App. 1983). (Em-

phasis added.)

The purpose of the EPCA is stated, in part, in the Act

as follows:

Sec. 2. The purposes of this Act are—

(1) to grant specific standby authority to the

President, subject to congressional review, to impose

rati.ning, to reduce demand for energy through the

implementation of energy conservation plans, and

to fulfill obligations of the United States under the

international energy program... .

While the stated purposes of the EPCA include a

reference to the congressional veto, it does not follow that

the veto provisions are inseverable. The intention of

Congress to review the President’s actions through the

veto is obvious from the face of the legislation. Our task

is to determine “whether Congress would have enacted

the remainder of the statute[s] without the unconstitu-

tional [veto] provisions.” Consumer Energy Council of

America v. F.E.R.C., 673 F.2d 425, 442 (D.C.Cir. 1982),

aff'd sub nom., —— U.S. ——, 103 S.Ct. 3556, 77 L.Ed.

2d 1402 (1983).

Gulf cites numerous portions of the legislative history

in an attempt to prove that the compromise between the

flexibility desired by the Executive and the oversight de-

manded by Congress was an extremely fragile one which

could not have been enacted absent the legislative veto

provisions. In none of these references, however, do we

alll

109a

find a clear indication that the EPAA or EPCA would

not have been passed without such vetoes. E.H.0.C. v.

Hernando Bank, supra, at 1191. The mere presence of

continued and heated debates prior to the passage of the

Acts cannot provide the evidence necessary for us to con-

clude that the legislative vetoes are inseverable and that

the sections in which they appear, as well as the sections

conferring jurisdiction on this Court, must be invalidated.

See Allen v. Carmen, 578 F.Supp. 951 (D.D.C., 1983),

and United States v. Sutton, —— F.Supp. ——, No.

82-C-1069-BT (N.D.Okl. Apr. 4, 1984).

We also are not persuaded by the reference to the veto

provisions in the legislative history which describe their

operation. Such descriptions are not helpful in determin-

ing what Congress would have intended had it known the

legislative vetoes were invalid. Consumer Energy Council

of America v. F.E.R.C., supra, 673 F.2d at 442. We

therefore conclude that it is not evident that Congress

would have declined to enact the EPAA and EPCA with-

out the legislative veto provisions.

We reach this conclusion because, contrary to Gulf’s

contention, the question is not whether Congress would

have enacted these exact statutes had it known at the

time of enactment that the legislative veto provisions

were invalid, but rather, whether Congress would have

preferred these statutes, after severance of the legislative

veto provisions, to no statutes at all.

We must next determine if what remains in the Acts

is “fully operative as a law.” Buckley v. Valeo, supra,

424 U.S. at 109, 96 S.Ct. at 677. The legislative veto pro-

vision of the EPAA appears in Section 4(g) (2). Once

25 The veto provision of Section 4(g)(2) of the EPAA is as

follows:

Such an amendment shall take effect on a date specified in the

amendment, but in no case sooner than the close of the earliest

period which begins after the submission of such amendment

110a

the veto is severed, the remainder of Section 4(g) (2)

gives the President limited decontrol authority over crude

oil, residual fuel oil, or any refined petroleum product

after making specific findings that regulation of such oil

or product is no longer necessary under the Act, that no

shortage exists and that exempting such oil or product

will not have an adverse impact on the supply of other

oil or products. Without the veto, Section 4(g)(2) is

“fully operative as a law.” Id.

Similarly, the legislative veto provisions contained in

the EPCA, once removed, leave the remainder of the Act

“fully operative as a law.” Id. In fact, the hard-fought

compromise between the Executive and Congress over

pricing and decontrol, which Gulf contends demonstrates

the inseverability of the vetoes, is maintained after sev-

erance. Without the vetoes, Sections 401 and 455 of the

EPCA resemble “report and wait” procedures specifically

approved in Chadha.” I.N.S. v. Chadha, supra, 103 S.Ct.

to the Congress and which includes at least five days during

which the House was in session and at least five days during

which the Senate was in session; except that such amendment

shall not take effect if before the «xpiration of such period

either House of Congress approves a resolution of that House

stating in substance that such House disapproves such amend-

ment. (Emphasis Added)

26 Either House of Congress could unilaterally veto an amendment

proposed by the President by following the procedures for congres-

sional review contained in § 551 of the EPCA. When the legislative

veto in §551(c)(1) is excised from the section a fully workable

“report and wait” procedure is preserved. The President could still

propose an amendment to the Congress, but Congress would be

able to prevent its effectiveness by passing legislation contrary to

the amendment within specified time periods. Thus, Congress would

still retain the opportunity to review Presidential proposals, but

would only be able to disapprove of such actions through use of the

constitutional legislative process. Such a procedure is not only

workable, but preserves to the greatest extent possible the com-

promise between Congress and the Executive intended in the

legislation.

1lla

at 2776 n. 9, and Sibbach v. Wilson & Co., 312 USS. 1,

61 S.Ct. 422, 85 L.Ed.2d 479 (1941).

From the beginning of price controls under federal

statutes and regulations, courts have resolved challenges

to their constitutionality. See, Amalgamated Meat Cut-

ters and Butcher Workers of North America v. Connally,

337 F.Supp. 737 (D.D.C. 1971); Consumers Union of

U.S., Inc. v. Sawhill, 525 F.2d 1068 (Em.App. 1975).

These challenges have escalated enormously since the

enactment of the EPAA and EPCA. See, Condor Operat-

ing Co. v. Sawhill, 514 F.2d 351 (Em.App.), cert. denied,

421 U.S. 976, 95 S.Ct. 1975, 44 L.Ed.2d 467 (1975);

Cities Service Co. v. F.E.A., 529 F.2d 1016 (Em.App.

1975), cert. denied, 426 U.S. 947, 96 S.Ct. 3166, 49

L.Ed.2d 1184 (1976), the authorities therein, and their

progeny. The scope of these attacks has been unreason-

ably broad. The statutes have been upheld because “[a]

limit in time, to tide over a passing trouble, well may

justify a law that could not be upheld as a permanent

change.” Block v. Hirsh, 256 U.S. 135, 41 S.Ct. 458, 65

L.Ed. 865 (1921). As the program under the law winds

down in the wake of decontrol, this latest and broadest

attack also is without merit.

Therefore, we conclude that the unconstitutional legis-

| lative veto provisions of the EPAA and EPCA are sever-

| able, leaving the remainder of the Acts intact and with

no effect on this Court’s jurisdiction. Gulf’s Motion to

Dismiss the Cross-Appeal is DENIED.

Computation of Maximum Allowable Price in Determin-

ing Overcharges

te ee | ee

Gulf contends that the District Court did not determine

that its prices charged to Dyke exceeded the “maximum

allowable price.” Such a finding, Gulf states, is necessary

before concluding that overcharges have occurred. “Maxi-

mum allowable price” is defined in the regulations as:

112a

“| , the weighted average price at which the

covered product was lawfully priced on May 15,

1973, computed in accordance with the provisions of

[10 C.F.R.] § 212.83(a), plus increased product costs

and increased non-product costs incurred between

the month of measurement and the month of May

1973.” 10 C.F.R. § 212.82.

See also, Wellven, Inc. v. Gulf Oil Corp., 731 F.2d 892

(Em.App. 1984).

Gulf cites our decision in Longview Refining Co. v.

Shore, 554 F.2d 1006 (Em.App. 1977), cert. denied, 434

U.S. 836, 98 S.Ct. 126, 54 L.Ed.2d 98 (1977), as requir-

ing specific findings by the district court establishing the

existence of overcharges in a sum certain before a plain-

tiff may recover. 554 F.2d at 1012. While such specific

findings are indeed required by Longview, the findings

which supposedly established the maximum allowable price

in Longview were “defectively general and all-inclusive.”

Id. at 1018. We hold that the District Court’s findings

and method of computing overcharges in this case, al-

though erroneous as to class of purchaser base price for

reasons hereafter to be discussed, were otherwise suffi-

cient under the regulations.

The District Judge used the following formula to com-

pute overcharges:

“The proper method in this case for calculating

the overchages is to subtract the court-ordered May

15, 1973 prices to Dyke from the May 15, 1973 prices

imputed to Dyke based on Platt’s Oilgram. If Gulf

did not actually pass through its full cost increment

to Dyke in a month, the cost increment difference is

to be subtracted from the overcharge calculated on

May 15 prices. The diiference shall be multiplied

by the volume of each grade of gasoline sold to Dyke

in each month... .” FFCL, Record at Vol. 11, Tab.

147, p. 19.

118a

Using this formula, the parties then stipulated the amount

of the overcharges. Id. at p. 20.

This method employs both May 15, 1973 base prices

and Gulf’s stated increased costs to arrive at the maxi-

mum allowable price. Using the figures provided by Gulf,

the district court was able to determine the costs Gulf

elected to pass through each month?’ as well as the dates

on which Gulf did not charge Dyke the full amount of

increased costs available.2* Gulf was given credit for

these undercharges to Dyke in computing total over-

charges. Thus the findings sufficiently found all of the

elements of the maximum allowable price calculations as

a basis for determining that sales exceeded the “maximum

allowable prices” permitted under the governing Refiner

Price Rule.

Prejudgment Interest

We hold that this case is not an appropriate one in

which to award prejudgment interest. Accordingly, we

need not reach the question of whether prejudgment in-

terest may ever be awarded in an overcharge case under

the EPAA. Recently, we declined to award prejudgment

interest in two cases because the amount claimed was not

for a “liquidated or readily liquidatable sum.” Eastern

Air Lines, Inc. v. Atlantic Richfield Co., 712 F.2d 1402,

1410 (Em.App.), cert. denied, USS. , 104 S.Ct.

278, 78 L.Ed.2d 258 (1983); Zahir v. Shell Oil Co., 718

F.2d 1567, 1573 (Em.App. 1983). In addition, pre-

judgment interest is not appropriate in this case because

the ultimate amount of the overcharge was the “subject

of great uncertainty,” requiring extensive testimony

and arguments from counsel before the court could select

even a method for calculating the alleged overcharges.

27 Record at Vol. 17, Tab 292.

28 Td.

22 Fastern Air Lines, supra, at 1410.

1l4a

Following our decision in Eastern Air Lines, supra, Gulf

filed a motion to amend the Findings of Fact and Con-

clusions of Law to delete the award of prejudgment

interest.*° In an Order dated August 24, 1983, Judge

Panner denied the motion, stating only, “The motion to

deny an award of prejudgment interest is DENIED be-

cause Magistrate Juba was able to determine appropriate

amounts with certainty. Therefore Eastern Air Lines

does not control.” #4 While it is true that the magistrate

was able to ultimately determine an amount certain to

be applied as prejudgment interest following the judge’s

ruling, certainty in calculating interest on a definite

sum is not what Zahir and Eastern require. Rather, we

again hold that in this case, where the amount claimed

to be due varied and was uncertain, it is “inequitable

and unjust” to award prejudgment interest.*

Attorney’s Fees

The district judge awarded Dyke $750,000 in attorney’s

fees," finding that our recent decision of Eastern Air

Lines, supra, was not controlling. In Eastern Air Lines,

we conducted an extensive study of §210(b) of the

ESA*™ and the limitations on a judge’s discretion in

awarding attorney’s fees imposed by that section:

“ .. [T]o deprive the court of its discretionary

power to award treble damages and attorney’s fees,

the defendant making the overcharge must prove

that (1) the overcharge was not intentional, and (2)

80 Record at Vol. 16, Tab 254.

$1 Record at Vol. 16, Tab 256, p. 2.

82 Fastern Air Lines, supra, at 1410.

33 Record at Vol. 11, Tab 161.

%4 Although the district judge stated that “TECA was not re-

quired in [Eastern Air Lines] to carefully analyze the language of

the statute authorizing attorneys’ fees” (Record at Vol. 11, Tab

155, p. 3), we believe our analysis in Hastern was thorough and is

controlling.

a ah a A a a rT aa ta aaiindind

ro

115a

the overcharge resulted from a bona fide error not-

withstanding (3) the maintenance by the defendant

of procedures reasonably adapted to the avoidance of

such error.

“In the absence of such proof by the defendant the

court in its discretion may award treble damages and

attorney’s fees if it finds the overcharge was in-

tentional or resulted from reprehensible or criminal

conduct, or lack of procedures reasonably adapted to

the avoidance of erroneous overcharges, or bad faith,

or where required by equity and the ends of justice.”

Eastern Air Lines, supra, at 1412; second paragraph

quoted in Wellven, Inc. v. Gulf Oil Corp., supra.

The Findings of Fact and Conclusions of Law contain

the express finding that any overcharges by Gulf were

not intentional. “. . . In light of the circumstances and

lack of guidelines at the time Gulf’s decision was made, I

find that the overcharges were not intentional.” FFCL,

Record at Vol. 11, Tab. 147, pp. 21-22.*

In view of the findings made by the district judge that

the overcharge was not intentional and, although not in

the precise language” * of § 210(b), the finding that Gulf

maintained “procedures reasonably adapted to the avoid-

ance” of overcharge,®*” as well as our conclusion upon

examination of the record that any overcharges were the

result of a bona fide error, we hold that it was plain error

35 See also, Record at Vol. 25, Tab 329, p. 1158, 1. 17. In Long-

view Refining Co. v. Shore, supra, at 1014, n. 20 (Em.App. 1977),

this Court warned, “Fundamental fairness requires that the regula-

tions be clear so that men of common intelligence need not guess

at the meaning and differ as to the application. Boyce Motor Lines

v. United States, 342 U.S. 337, 72 S.Ct. 329, 96 L.Ed. 367 (1952) ;”

also Standard Oil Co. v. D.O.E., 596 F.2d 1029, 1065, n. 87 (Em.

App. 1978).

36 astern Air Lines, supra, at 1412.

87 Td.

1l6a

to award any attorney’s fees in this case. In any event,

the amount of attorney’s fees awarded here was so ex-

cessive as to constitute a clear abuse of discretion.”

Plaintiff Fietcher’s Standing to Sue

Gulf claims that Plaintiff Fletcher has no standing to

sue under ESA § 210 for overcharges because Fletcher

was an indirect purchaser from Gulf. The contract for

sale of gasoline was between Gulf and Tesoro Petroleum

Corporation. Tesoro then resold the gasoline to Fletcher.”

Section 210(b) of the ESA authorizes suits for over-

charges “. . . against any person renting or selling goods

or services who is found to have overcharged the plain-

tiff.” (Emphasis added) We hold that, on the basis of

our examination of the record and as a matter of law,

*86 Jd. The attorney’s fees awarded in this case were grossly ex-

cessive and a clear abuse of the judge’s discretion. The last-

submitted affidavit of plaintiff's counsel in support of the motion

for attorney’s fees included in the record reflects a requested bonus

payment of $84,600.00. The requested fees were $397,641.60 and

stated expenses were $17,289.76. The total of submitted fees, ex-

penses and bonus through March 10, 1983 was $499,531.36. Record

at Vol. 11, Tab 144. Judge Panner made an award of attorney’s

fees in the amount of $750,000.00, supra, and Record at Vol. 11,

Tab 161, representing a bonus payment of $250,468.84 more than

the total of fees, expenses and bonus in the affidavit. Including the

bonus of $84,600.00 which was requested in the affidavit, the total

bonus to plaintiffs’ attorneys was $335,068.64. Additionally, the

itemized billing statements submitted by plaintiffs’ counsel include

substantial charges made for the Amici Curiae brief filed on behalf

of these plaintiffs on January 12, 1983 in Hastern Air Lines v.

Atlantic Richfield Co., supra, before this Court. The Amici brief

urged the same positions on the prejudgment interest and attorney's

fees issues as plaintiffs have argued in the present case. In Eastern

Air Lines, these positions were rejected by this Court.

29 Fletcher paid Tesoro Gulf’s sales price plus a fixed markup

of $.00375 per gallon. FFCL, supra, at 14. We are not convinced

that the “unique relationship” the district court found between

Gulf, Tesoro and Fletcher (/d. at 12-15) requires a determination

that Fletcher was anything other than an indirect purchaser from

Gulf.

117a

Fletcher was an indirect purchaser from Gulf. Indeed,

Plaintiffs’ counsel classified Fletcher in this statement to

Judge Panner: “That’s a question of whether Fletcher is

entitled as a subjobber and has standing to bring this

matter in the first place.” Record at Vol. 21, Tab. 325,

p. 233, 1. 21.

Fletcher was an indirect purchaser with no standing

to sue for overcharges, and we so hold. See, Palazzo v.

Gulf Oil Corp., 4 Energy Mgt. § 26,448 (Em.App. 1983),

cert. denied, —— U.S. ——, 104 S.Ct. 1424, 79 L.Ed.2d

749 (1984) ; Arnson v. General Motors Corp., 377 F.Supp.

209 (N.D. Ohio 1974). When Congress created the

Temporary Emergency Court of Appeals as “a court of

special and limited jurisdiction” *” which should “strictly

construe [its] statutory grants of jurisdiction,”* it did

not authorize recovery of overcharges by indirect pur-

chasers. The EPAA expired by its own terms in Septem-

bert 1981. We will not expand the statutes while exercis-

ing our jurisdiction under the savings clause. 15 U.S.C.

§ 760g.

Statute of Limitations

In addition to our foregoing holding that Plaintiff

Fletcher does not have standing to sue Gulf, we hold that

any claim by Fletcher would also be barred by the appli-

cable statute of limitations. Because the ESA, EPAA

and EPCA do not contain specific statutes of limitation,

we must apply the most closely analogous state statute of

limitation to causes of action arising under the Acts.

Ashland Oil Co. of California v. Union Oil Co. of Califor-

nia, 567 F.2d 984 (Em.App. 1977), cert. denied, 435

Texaco, Inc. v. D.O.E., 616 F.2d 1193, 1196 (Em.App. 1979),

and authorities cited therein.

41 United States v. Cooper, 482 F.2d 1393, 1898 (Em.App. 1973),

approved by the Supreme Court in Bray v. United States, 423 U.S.

73, 96 S.Ct. 307, 309, 46 L.Ed.2d 215 (1975).

118a

U.S. 994, 98 S.Ct. 1644, 56 L.Ed.2d 83 (1978) ; Colorado

Petroleum Products Co. v. Husky Oil Co., 646 F.2d 555

(Em.App. 1981).

The district judge applied the Oregon six-year statute

of limitations to Plaintiff Fletcher.“ We hold that this

was plain error and that the Washington two-year statute

of limitations* should be applied to Fletcher.

Plaintiff Fletcher is a Washington resident.“ Fletcher

purchased 60 percent of its gasoline in Washington and

40 percent in Oregon.” All of Fletcher’s gasoline was

sold in Washington.” Gulf is a Pennsylvania corpora-

tion.” Under Oregon’s “borrowing statute,” Or.Rev.Stat.

§ 12.260, when two nonresidents bring a cause of action

in an Oregon court which arose in another state, the

Oregon court will apply the foreign state’s statute of

limitations if it is shorter than Oregon’s.

The district judge held that although the “borrowing

statute” might be applicable, his decision should also be

governed by general Oregon choice of law standards.“

Under Oregon law, when more than one state has an

interest in a controversy, the law of the state which has

the “most significant relationship” to the controversy will

be applied.” The district judge found that Washington

had no true interest in the controversy.” We disagree.

#2 Or.Rev.Stat. § 12.080 (1983).

*® Wash.Rev.Code § 4.16.130 (1962).

** FFCL, Record at Volume 11, Tab 147, App. A, p. 2.

“5 Id.

46 Id.

47 Id.

48 Id. at 4.

9 Id., citing Fisher v. Huck, 50 Or.App. 635, 624 P.2d 177 (1981).

» Id. at 6.

119a

Plaintiff Fletcher is a Washington resident. Most of the

gasoline was purchased in Washington, and all of it was

sold there. We hold that, as between Washington and

Oregon, Washington had the more significant relation-

ship to the controversy. Oregon’s “borrowing statute” is

applicable, and the shorter Washington two-year statute

of limitations should apply to Fletcher.

The district judge also declined to apply Washington’s

two-year statute of limitations because he found that “a

two-year limitation places a bar on recovery inconsistent

with federal policy.” We have already held that “[a]

two-year statute is certainly not inconsistent with na-

tional energy policy seeking to wind up regulation of the

oil industry—‘temporary’ ab initio.” Johnson Oil Co. v.

DOE, 690 F.2d 191, 196 (Em.App. 1982). See also, Ash-

land Oil Co., v. Union Oil Co. of California, supra; Siegel

Oil Co., v. Gulf Oil Corp., 701 F.2d 149, 152 (Em.App.

1983).

Therefore, Washington’s two-year statute of limita-

tions should be applied to Plaintiff Fletcher. Fletcher’s

claim was brought in 1977 for overcharges beginning in

1974. In a case such as this, where any overcharges in-

curred resulted from an initial improper base price, the

statute of limitations begins to run from the date of the

first overcharge. Western Mountain Oil, Inc. v. Gulf Oil

Corp., 726 F.2d 765 (Em. App. 1983) ; Fleetwing Corp. v.

Mobil Oil Corp., 726 F.2d 768 (Em.App. 1983); Lerner

v. Atlantic Richfield Co., 731 F.2d 898 (Em.App. 1984),

rehearing en banc denied, April 10, 1984. Fletcher’s claim

for overcharges is barred by Wash. Rev. Code § 4.16.130.

Passing on Defense

Gulf claims that those overcharges which were passed

through to the Plaintiffs’ service station customers should

81 ]d.

120a

not be refunded because the Plaintiffs’ suffered no eco-

nomic injury from overcharges which were passed down

the stream of commerce.” Although such use of a pass-

ing on defense has been denied because of difficulty of

proof in the past, Gulf argues that in determining the

sum on which to award prejudgment interest, the trial

court sufficiently found the amounts which the Plaintiffs

had passed through to their customers, and therefore, no

difficulty of proof problem exists which would prevent

the use of passing on as an affirmative defense.”

In Eastern Air Lines, Inc. v. Atlantic Richfield Co.,

609 F.2d 497 (Em.App. 1979) (“ARCO I’), this Court

refused to allow a passing on defense in an overcharge

action. In ARCO I, we held that, in order to be excepted

from the general rule disallow g the affirmative pass

on defense,” the defendant must establish that a pre-

existing functional equivalent of a cost-plus contract ™

existed in which Plaintiffs would necessarily pass through

any overcharge received, and that the effect of the over-

charge to Plaintiffs must be capable of determination in

advance. Id. at 498.

Therefore, Gulf’s assertion that the overcharges passed

on by Plaintiffs were determined by the magistrate at

trial, thus obviating any difficulty of proof problem, misses

the point. In order for Gulf to successfully assert the

passing on defense, the impact of any overcharges made

52 Gulf’s Brief at 21.

53 Illinois Brick Co. v. Illinois, 481 U.S. 720, 97 S.Ct. 2061, 52

L.Ed.2d 707 (1977); Eastern Air Lines v. Atlantic Richfield Co.,

609 F.2d 497 (Em.App. 1979) (“ARCO I”).

% Gulf’s Brief at 21-23.

55 See, Hanover Shoe, Inc. v. United Shoe Machinery Corp., 392

US. 481, 88 S.Ct. 2224, 20 L.Ed.2d 1231 (1968).

56 1d.; In re Beef Industry Antitrust Litigation, 600 F.2d 1148

(5th Cir. 1979).

12la

by it to plaintiffs must be determinable before the over-

charges occurred. Such was not the case here. There

was no certainty about how plaintiffs would price their

gasoline at the service station in response to the amount

charged by Gulf. Because the exception to the general

rule disallowing passing on as a defense is narrow, we

hold that Gulf may not use the passing on defense in this

case where no preexisting functional equivalent of a cost-

plus contract existed.

Class of Purchaser Determination

Gulf asks us to overturn the district judge’s order

denying Gulf’s motion to reopen the trial on the class of

purchaser issue.®’ Gulf sought to introduce additional

evidence to show that the San Francisco Bay area, where

Armour is located, is a distinct market from the Seattle-

Tacoma-Portland area, where Plaintiffs are located, and

thus it would be inappropriate to use the same classifi-

cation and base price for Armour and the Plaintiffs.

Judge Panner denied the motion to reopen the trial

during a telephone conference on May 12, 1982,°* sixteen

months before a final judgment was entered on September

12, 1983. It is apparent from the transcript of that con-

ference that the judge had not fully considered the memo-

randum and affidavit accompanying Gulf’s motion.” Al-

though the grant or denial of a motion to reopen the

trial is within the district judge’s discretion,” we hold

that the refusal to reopen the trial in this case was an

abuse of discretion and clear error.

57 Gulf’s Brief at 24.

58 Record at Vol. 19, Tab 323.

59 Jd. at 3.

© Sanders v. Int'l. Ass'n. of Bridge Workers, 546 F.2d 879 (10th

Cir. 1976).

122a

The district judge’s ruling on the motion to reopen

the trial without considering the supporting documents

filed by Gulf was an abuse of discretion. See, Sertic v.

Cuyahoga Counties Carpenters Dist. Council, 459 F.2d

579 (6th Cir. 1972). The Pretrial Order in this case was

extremely vague as to the issues framed for trial,“ and

we hold that Gulf did not have a full and fair opportunity

to present evidence on its most similar existing class of

purchaser after the ruling denying the use of Plati’s

Oilgram as a base price determinant. Therefore, we

reverse and remand the district judge’s ruling on the

motion to reopen trial and direct him to consider Gulf’s

evidence and make a new determination of the proper

class of purchaser and base price for the plaintiffs.

CONCLUSION

1. Gulf’s Motion to Dismiss is DENIED.

2. The district court’s Order determining the proper

class of purchaser for Plaintiffs is REWERSED and

REMANDED with directions to reopen the trial to ccn-

sider Gulf’s evidence on the class of purchaser issue. Any

award of overcharges must be recalculated to reflect any

change in base price.

3. The Orders of the district court granting attorney’s

fees and prejudgment interest are REVERSED.

4. That portion of the judgment of the district court

awarding overcharges to Plaintiff Fletcher is RE-

VERSED.

The judgment of the district court is REVERSED and

REMANDED for further proceedings consistent with this

opinion.

61 Although the Pretrial Order contained references to the Armour

class of purchaser, the record reflects that the idea of using the

Armour base price for Plaintiffs was first seriously considered at

trial.

123a

CHRISTENSEN, Judge, concurring:

The prevailing opinion has my full coneurrence but I

wish to add a few words to clarify an unaddressed mis

conception relating to the wording of the controlling

statute which might otherwise appear on its face to carry

weight.

The centention has been made that if, as held in

Eastern Airlines, a court’s discretion to award attorney’s

fees under section 210(b) of the ESA is limited to cases

of willful overcharges, mention of “costs” would not have

been included in the phrase “reasonable attorney’s fees

and costs,” since under the general rule taxable costs are

recoverable by prevailing parties in any event. The con-

tention fails to recognize the distinction between taxable

costs awardable as of course to a prevailing party apart

from adjudged liability and “reasonable attorney’s fees

and costs” as a liability authorized in departure from the

American Rule as to attorney’s fees because of certain

recognized equitable considerations or, as here, by ex-

press statutory provision under specified conditions. If

the term “costs” in line with the argument had been

eliminated from the phrase, a more plausible contention

could have been made that even taxable costs could not

be recovered at all in case of willful overcharges whereas

they would have been if the overcharges were not willful.

Congress did not need to invite the latter unreasonable

construction by omitting the mention of costs in connec-

tion with its reference to attorney’s fees. It plainly in-

dicated its intention to the contrary and it would be

quite unreasonable to hold that in so doing it granted

carte blanche discretion to award “attorney’s fees and

costs” in disregard of the limitations it specified merely

because taxable costs utherwise may have been awardable

to a prevailing party without reference to those limita-

tions.

124a

ZIRPOLI, Judge, concurring in part and dissenting

in part:

While I am in accord with the opinion of the majority

on the issues of jurisdiction, remand for further trial

on the class of purchasers determination, and the statute

of limitations applicable to Fletcher, I cannot agree with

the majority’s conclusions on the issues of prejudgment

interest, attorney’s fees, and Fletcher’s standing. Ac-

cordingly, I must respectfully dissent.

A. Prejudgment Interest

The majority concludes that it was improper for the

district court to award prejudgment interest in this case

because the amount of overcharges by Gulf were not cer-

tain until after trial. The majority relies on Zahir v.

Shell Oil Co., 718 F.2d 1567, 1573 (Em.App. 1983), and

Eastern Air Lines, Inc. v. Atlantic Richfield Co., 712

F.2d 1402, 1410 (Em.App.), cert. denied, US.

——, 104 S.Ct. 278, 78 L.Ed.2d 258 (1983). Neither of

these cases bars an award of prejudgment interest in the

present case. Because I find no abuse of discretion in the

trial court’s award of prejudgment interest in this case,

I would affirm that portion of the decision.

“In the absence of an unequivocal prohibition of in-

terest, and where the statute imposes a money obligation,

the power of the court to award interest is dependent

on an appraisal of the congressional purpose of imposing

the obligation and on the relative equities of the parties.”

Hodgson v. American Can Co., 440 F.2d 916, 922 (8th

Cir. 1971). The statute authorizing suits to collect over-

charges is remedial in nature and designed to compensate

those who have been overcharged for the losses that they

sustained as a result of the overcharges. See Minnesota

v. Standard Oil Co., 516 F.Supp. 682, 687 (D.Minn.

1981) ; Ashland Oil Co. of California v. Union Oil Co.,

567 F.2d 984, 990 n. 12 (Em.App. 1977). An award of

prejudgment interest to compensate plaintiffs for the loss

125a

of the use of money is consistent with the congressional

purpose of this statute.

The relative equities of the parties in this case do not

tip so strongly towards Gulf as to render the award of

prejudgment interest to plaintiffs an abuse of discretion.

While it may be true that Gulf had financial difficulties

in the Pacific Northwest where plaintiffs operate, this is

not a proper factor to consider in deciding whether or

not to award prejudgment interest, nor does it appear

that the majority considers this to be a relevant consid-

eration, since it is not mentioned in the opinion. What

is a relevant factor, is that Gulf conceded its use of spot

purchase prices reported in Platt’s Oilgram for estab-

lishing plaintiffs’ base price was unjustified. In deciding

to award prejudgment interest, the trial court expressed

its “concern that there wasn’t a more serious effort [by

Gulf] ... to correct the overcharge.” (Tr. 1159). Al-

though the trial court did find that Gulf’s overcharges

were not intentional, and so did not award treble dam-

ages, I think that it was well within its discretion to

award prejudgment interest to plaintiffs on overcharges

which they did not pass through to their customers.

The majority bases its reversal of the award of pre-

judgment interest on the fact that the principal amount

of the overcharge was the “subject of a great amount

of uncertainty” becduse the parties were in disagree-

ment as to what was the most appropriate class of pur-

chasers for plaintiffs. Until the trial court had ruled

on the appropriate class of purchasers question, the prin-

cipal amount of overcharges could not be computed. Be-

cause this uncertainty as to a legal issue is not the type

which is traditionally held to preclude an award of pre-

judgment interest, I would defer to the trial court’s

determination that the relative equities of the parties, as

well as the remedial purpose of the statute, warranted

the award. Neither Zahir or Eastern Airlines dictates

otherwise.

126a

In both Zahir and Eastern, this court affirmed the trial

court’s denial of prejudgment interest. In Zahir it was

held that “the trial court did not abuse its discretion”

in declining to award prejudgment interest where the

plaintiffs claim was “not for a liquidated or readily

liquidatable sum.” 718 F.2d at 1573. In that case, the

plaintiff’s claim upon which he sought prejudgment in-

terest was for lost profits due to the defendant’s failure

to supply him with gasoline. A claim for lost profits is

a highly speculative type of injury which must be esti-

mated, rather than one which is capable of determina-

tion with mathematical precision. It has long been the

rule that awards of prejudgment interest are not given

on claims of injury which are not of the type capable of

reasonably precise determination. Thus, the refusal of

the trial court to award prejudgment interest in Zahir

was clearly correct.

In the present case, on the other hand, the injury suf-

fered by plaintiffs was one capable of mathematical com-

putation. The “uncertainty” involved was due to the par-

ties’ dispute as to which was the proper class of pur-

chasers for determining plaintiffs’ base price. Once the

trial court had made its ruling on the class of purchasers

question, the principal amount of the overcharge was one

capable of mathematical computation.’

Courts have traditionally had discretion to award pre-

judgment interest in cases where the damages are liqui-

1A great deal of time was spent in determining what portion

of the overcharges plaintiffs had passed through to their customers.

The trial court had ruled that it would be inequitable to award

plaintiffs prejudgment interest on overcharges that they had

passed through, since to the extent of such pass-throughs, plaintiffs

had not been deprived of the use of the money. Gulf should not be

heard te complain about any “uncertainty” involved in determining

the amount passed through, since this equitable determination to

limit the award of prejudgment interest on overcharges was to

Gulf’s benefit.

127a

dated or capable of mathematical computation. Thus, it

has been said that “interest is aliowed on all claims that

are liquidated or readily ascertainable by mathematical

computations . . . in other words where it is not neces-

sary to rely upon opinion or discretion.” Nelse Mortensen

& Co. v. United States, 305 F.Supp. 470, 471 (E.D.

Wash. 1969) (quoting from Caterpillar Tractor v. Collins

Machinery Co., 286 F.2d 446 (9th Cir. 1960)). A dis-

puted claim is not rendered unliquidated or incapable of

precise valuation merely because the parties disagree as

to the proper method for calculating the principal amount

due. Thus, in American Enka Co. v. Wicaco Mach. Corp.,

686 F.2d 1050, 1057 (8rd Cir. 1982), where the parties

were in disagreement over the correct date to be used

for an award of the market value of goods lost by a

bailee, the court held that the dispute concerned a liqui-

dated amount “capable of ascertainment with mathemati-

cal precision” (once it was determined which was the

proper date for purposes of valuing the property) and

the trial court had discretion to award prejudgment in-

terest. See also, Mortensen, 305 F.Supp. at 471 (“Mere

difference of opinion as to amount is, however, no more

reason to excuse him from interest than difference of

opinion whether he legally ought to pay at all, which has

never been held an excuse.’’ (emphasis delete

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